Transcripts For BLOOMBERG Bloomberg Go 20161007

Plunge in the pound since the brexit referendum with traders saying the slump exacerbated Like Computers initiated sell orders. David lets bring in guy johnson from london. Exactly what happened . Midnight and london, liquidity light and everybody asleep and suddenly this happened. We dropped like a stone. Data shows we got to 11841, some platforms had a 113 handle and the bit off a spread blowout 250 times what it normally is. Normally this traits on a wafer and it got blown out. What caused it, we do not know. Like liquidity, a combination of alcos and maybe fat fingers causing this to happen. It has stay down. It found currently trading at 123. 66. Jon you can see how tightknit is. Tight that is last night tight that is. What was bigger, the flash crash over the week, talk about the fundamentals and how nervous people seem to be to buy into any seller of sterling. The icing on the cake was the event that the cake has been a very difficult week for sterling. We have seen it going lower as the combination of hard brexit and tough language out of theresa may at the birmingham meeting of the conservative party drove the currency lower. Ata has been fairly good if you talk to currency strategist, if you went on the data, sterling would be around the 130 level but we are no or near that. People do not know where we are going next. Therefore the short positions keep piling up and i think that will be part of the story going. Orward lets bring in a global strategist. I got a tweet that says the u. K. Should avoid a rent of chancellor no one has ever heard up and fired him on the weekend when the strumming his 110. This feels like an emerging market currency. What is the story . The government is heating the desire of the british people to stick a banner into the spokes of our biggest clothing Global Trading relationships and hope we do not fall off. That is the stuff emerging market crisis is are made up. Vast amount of uncertainty about the Economic Outlook and vast amounts of uncertainty which are leading people to step away from buying the selloff in sterling and inventing numbers about where we may go. Until the uncertainty eases, it gets difficult and although this started with confirmation, we will trickle article 50 and start the process of leaving the eu by the end of march. That means two years of the u. K. Isand putting control of immigration of the top of the wish list and the eu is putting dealing firmly in line with saying it can only have control if you give up access to the Single Market at the top of theirs. In that environment, and two years, three years, sterling will be between 121 and 125 against the dollar. Anything goes if you want to have this much uncertainty. It does trade like an emerging market currency. We need to get a handle on what the downside, upside risks are from this and i do not see how we can get there. Jon talk to me about Market Structure appeared this is meant to be a very liquid currency. Wait for london to go to sleep if you want to see gassy markets. We associate that with the South African story we saw earlier this year, why are we seeing it in sterling specifically and more broadly, why are these events happening in global fx. There is a belief that, in the sense of there was always infinite liquidity but if i walk into my favorite coffee shop and say, what is the price for a skinny latte and they say, two pounds and 35 and i say i will have 5 million of those, they will laugh at my face. We have gotten used to liquidity in the markets that the relationship of the Banking Sector with marketmaking so that marketmaking proprietary trading washed up in one with risks taking on both sides, it has changed, because running risk in banks and advertising risk in banks has changed your we have a more brutal market than we had before. As we try to find the right price. We have not gotten reduction in overall financial risk around the world. Long time to get back to the situation where the price discovery process, we have bad news or a big seller of how we find the right pricing in a bunch of asset markets, that will take it while as we go to a new world order exacerbated by the number of computer programs trading for people in one way or another. This will be difficult for a bit of time. Alix when we have a flashbacks in u. S. In terms of equities in 2010 and we had regulators preventing that from happening again, do we have the same formula in the fx market . It is harder in overthecounter markets there in exchange markets, markets on exchange you get the rules on the market stops trading if you go more than a certain amount or you get put a bunch of regulations in place to control events and we have to do this in Financial Futures markets and equity markets sometime ago and it is harder in a big global , byebye off you and you sell, the sum total of someone in singapore selling or buying with someone in hong kong. That is harder to stop this kind of move in. I am sure this will be a wakeup to havesay we do need orderly markets and we will have to look at what happened on why it happened. David stepping back from the individual existence and talking about the larger picture, all of this decline in the count against with theresa may and her remarks at the party conference. How much is it of a priority to number 10 that they bring regularity to the town, is that important, she is not concerned with the banks but what about the strength of the pound . In the first instance, the pound is a shock absorber, if you think of this as a negative trait shock that is coming, we have decided to facing negative economic but negative trade shock in order to gain more control of immigration. That is the vote of the british people and what the government is putting true. It is a correct economic response from a policy maker to say if i have a weaker pound it will offset some negative trade shock. They will not want more than anybody else would want, a disorderly curtsy move it at a cheaper pound is part of the solution in the process. How they feel about the last 24 hours and all of this week, the scale of the move we have seen, we will wait and see, i bet it causes consternation. Natural currency is a and necessary shock absorber for the economic shock we have brought upon ourselves. David you are staying with us in london. We want to catch up on Hurricane Matthew up the coast on the United States. Lets go to first for nude. Hurricane first word news. It pounded floridas east coast, it has been downgraded to a category three hurricane but still as max sustained winds of 120 miles per hour. Power has been knocked out in 200 70,000 homes in business is in florida, the center of the hurricane is addicted to stay over florida for most of the day before moving into georgia and scepter line of morrow. Georgia and South Carolina tomorrow. The Nobel Peace Prize has been awarded to the colombian president. He helped broker the agreement that ended the five decade war with guerrillas known as farc. It may be bittersweet, boaters and columbia directed the peace plan and he is now in negotiation to salvage the deal. United Nations Security Council will extend the crackdown on Human Trafficking of the libyan coast. Member nations will be allowed to inspect ships on the high seas if there are grounds to suspect they are being used to smuggle migrants from libya. Global news 24 hours a day powered by more than 100 from six thousand journalists i am watching oil as Hurricane Matthew moves its way up the east coast. , a sharp. M. Eastern decline in oil prices as the Russian Energy minister said that he does not see an accord reached with opec next week in a meeting, opec and russia potentially meeting on the sidelines of an Energy Conference in istanbul next week. Why do they need another meeting if they already got to an agreement last week . Skepticism now to the oil market. That is having an effect somewhat on stocks, a push and pull of the weaker oil plus a stronger gold which is looking at first gains in nine days. It looks like the miners are moving on the higher gold. Cannot with a note yesterday that says if gold goes under 1250 they want to be a buyer, helping the miners in europe. Cit group, they are selling Aircraft Leasing business to a company in china for 10 billion which will distribute 3 billion of that to shareholders. It had been under activist pressure calling for a breakup and now will bring the market up 7 premarket with the distribution. Ahead, the countdown underway for the september payroll report, with us will be did a fuel a september rate hike when the numbers cross . An interview with bill gross. Alix this is bloomberg go. 172,000 forecast of four september with the payroll report. I want to touch with you first because we see a monster rally in the dollar. What happens when we get the numbers at a 30 8 30 . There has been a degree of stability in the payroll growth for the last few years about 200,000 each month. Every little volatility with the Unemployment Rate going down slowly and wage growth picking up even more slowly. If we see a faster acceleration and wage growth, i think the market will not only think we will get rate rises in december but might rethink where rates will be an 12, 18, 24 months. That is where you could see the dollar potentially push higher against the euro and the japanese yen. The big question will be in the Foreign Exchange market looking yieldswe see higher bond and do we then see risk aversion come into equities and emergingmarket . Alix if we do see that scenario, a probability of rate hikes higher and the dollar higher, what is the trickle down to u. S. Equities . Isgood news for the economy likely to be not so good news for the equity market. If you look at the last month and a half, and going back to the summer when rates globally bottomed on the long end of that , won 30 on the 10 year, you have a negative correlation 130 on the 10 year, you have a negative if you look at the report this morning, we are right at the level, one in three quarters percent on the 10 year yield, that goes back to the brexit vote, if you are shooting through there, if the number comes into hot, that will put pressure on the equity markets. Jon how much is a global bond market story . Inflation premium seemingly built up in the uk debt market on the back of what is happening with sterling. Will Everything Else follow, shipped up from that . It has because part of the story of the last month or so has been a central bankers have been telegraphing their reluctance to continue providing infinite monetary accommodations but the flipside of that is that we are getting a sense, whether in japan, in europe, and in the u. S. Between the candidates, that there will be fiscal stimulus next year and that should close rates in the long integral higher. David who has the lead in the National Bond market, is it the fed, janet yellen . For a long time we were told it was the bank of japan, who is leading . Leaving kit i think the fed still reads it but there is still this question, it is right the fed stillleads but there is this question, unusual Monetary Policy in the world, a negative l, that iseading, there is a downside of keeping rates this low for this long and we cannot assume we go on doing it. We could wind back to past times when we have assumed policy is easy forever and inflation low forever slow forever and we can go on buying aunts and risk we forget that and say im not sure that is right anymore. And if im not sure that is writing more how much of an adjustment do i get in yields . It was led by the bank of japan but the fed is the 500 todd gurley in this game. If we reprice where u. S. Rates are in two years time, not where theyre going this december, then we can have a decent sized adjustment of bonds and every other market will follow. Alix this is dhs go function on the terminal, s p versus the 10 year yield, the correlation was quite high in the summer and back in august and it has come down significant, now at. 3. Is there a possibility that stocks can the couple from what the yield curve does . There is but when you look at it, there are other incentives uncertainties on the horizon, the president ial debate, the beginning of earnings season, the message of that correlation softening over the last week or two says to us that the backdrop for 2017 for the equity market is positive. Earnings will recover and we will get growth and likely to get fiscal stimulus, maybe some tax reform. That is a good backdrop but you have to get through this uncertainty to get there. David coming back to the United States any jobs numbers which come out later today, how , howtive are the markets much is priced into the market and how much would move the markets upside or down . Kit we have seen a backup in break even inflation rates and Market Pricing is inflation and the bond market, we have seen that go up globally, huge in u. K. If you work to see, the market is looking for a 2. 6 points on average earnings, even if that is 2. 7 you will react, if it is higher than that you will get more overreaction. The payroll number, anything 200,000150000 and over does not move anybodys expectations. I will be watching the wage numbers first and foremost and then see if there is a surprise that makes everybody nervous. David thank you for being with us. Talking next about what the upcoming u. S. Election may mean for the stock market over the next 32 days, are we in store for more volatility . David this is bloomberg go. That is the Capital Building in washington, d. C. President ial debate sunday, who will move into 1600 avenue . The markets of the call had but Julian Emmanuel think we may be in store for swings. He has a note that takes us back through history of close elections and it is not pretty. When the voting public has a difficult time making up their mind, markets are volatile and that goes back to the whole uncertainty principle. Markets are uncomfortable with uncertainty, we saw it this morning in the british pound in september with the rising yields that spark volatility in the equity markets and we think we will see it into the election. Alix i have a great chart, my favorite for the next x weeks. Six weeks. It looks at the risk parity trade index for a clintontrump spread. You own stocks and bonds, the blue light is a clintontrump spread, not a one to one correlation but the red circle is well im highlighting. As you saw the look from gain in the polls, rick perry got hit hard, is there a correlation . It ties back to what we were talking about over the last couple of months, the correlation between stocks and bonds has shifted. When rates are rising and stocks are going down, if you are running a leveraged portfolio like a lot of these risk parity strategies are that assumes that there is a correlation that does not work that way, you will going to risk off and that to us is one of the big risks come not only in the payrolls report this morning that looking out over the next month, uncertainty causing risk aversion generally. Not justur study was about volatility, about market return coming out of elections where it was really a close election and pretty mediocre, a couple outliers, fdr did pretty well. If you want to go back to 1944. In general, when we have these close elections, the market does not do well in the aftermath . No, and the best example is the 2000 election which was decided in the Supreme Court a month after the boat. Markets are rightly after the vote. Although a month before the vote in 2000, the get any pull with eight points, similar to what some of the polls we have seen now, you still got to the point up until the election where there was this uncertainty in the markets could not handle it. Alix volatility has not picked up to this uncertainty, equities, fx, or treasuries. With volatility cheap what is the most effective way to hedge this . Buying a downside put spread in the s p funded by selling an upside call because we think that until 2017 and we actually see earnings start to do better and we know we are returning to growth, we do not think the market runs away even if we are wrong about how half the market is in the next 30 days. David how much is the cap between expectations on earnings and what earning performance ask him how much that exacerbate the problem . Normally it would not because fundamental analyst tend to be over optimistic by nature. When you have these other uncertainties in the background and you know that estimates are going to be reduced want to earning season starts next week, that is where the disconnect is and it makes this a challenging time. Alix great to see you. Thank you. The Ubs Securities Mark Halperin and John Heilemann will host a special debate special ahead of the second president ial debate on sunday evening starting at 8 30 p. M. Eastern in new york. Jon still ahead, Deutsche Bank is set to hold a formal sources Security Forum to explore options include raising capital if the legal bills mount. From new york city with an i on the fx market, and a sterling flash crash, this is bloomberg. Jon this is bloomberg go. 12 30 p. M. In london. The state of the markets, futures down 33. Six and everything is happening in london, the ftse 100 up a tencent 1 . 8 10 of 1 . A flash crash, a safe person moved to the downside. Yields creeping higher. On our away from payroll. Up one basis point. We are just one hour away from the september jobs report, the median estimate is for a gain of 172,000 jobs, the Unemployment Rate Holding Steady at 4. 0 . 4. 9 . We will break that down on radio and television with bill gross. A plunge in the pound to a 31 year low, traders saying the slump was exacerbated by computer initiated sell orders, the 6. 1 decline the biggest since voters chose to leave the european union. Millions of people in the u. S. Southeast order to flee as Hurricane Matthew set to become the strongest arm to hit the country since 2005. That pounded the Florida East Coast after leaving hundreds dead in haiti. David we want to turn to the big story about Deutsche Bank. In the aftermath of reports that the Justice Department could seek a 14 billion fine. We talked to the imf managing director Christine Lagarde and she was not shy about talking about the risk of litigation of that big bank. And a badlawyer settlement is always better than a good trial. We are not in a trial mode in the case of Deutsche Bank. A settlement would be welcome because it would deliver some certainty as to what ways the bank will have to carry and with the provision or not. Mustread, is a Deutsche Bank seeking advice on possibly raising new capital to cover the cost of settling the boj claim. Department of justice grant, top wall street firms speaking with representatives of the letter, with ideas including a share sale and asset disclosure. Michael, is this getting ready for the possibility of or a serious effort to raise new capital . They are exploring all options. It ultimately comes down to what j number is come analysts have it from 4 billion to 8 billion. It may be covered by the litigation reserves and they may be built back up over time but on the highend you may need a more dramatic move. David his acquaintance that they have authorization to seek 5 billion euros in Equity Capital without going to the shareholders, it seems to be close to the number the department of justice may be asking for. That has been set in stone for several months. That is what they have authorization for that is not a new number. They could go back to shareholders if they needed more. Alix autonomous was out with research that said if the department of justice five is just 5. 6 lien dollars and 2. 5 billion for Money Laundering probe, still a about a 9 billion euro shortfall for Deutsche Bank , what is the next plan after a potential equity rate . There is a number of things they could do, they could couple the equity raise with a more dramatic in the composition poolelsash or sell of minor units or do something larger like a partial that partial sale of the management unit. There are a number of options that they have to raise the capital. If they think the market will be patient, they could raise some capital and do more overtime through earnings. The earnings picture needs to look better, one of the big issues for them is that they are not internally generating much capital given their high cost structure. Jon great to have you with us. I see three issues for Deutsche Bank, the markets is calm, but the idea that they are valued at a quarter, the book value, there is a reason for that. You do not know what is on the Balance Sheet. Some loans. Said they are not raising capital and we are learning that they are exploring options to raise capital. We were totally Asset Management was a core part of the business and now we know theyre looking it spinning off certain assets. It puts together the idea of how do you value the bank and do you believe what the ceo tells you . Not because he does not mean it that can he follow up on what he is saying . If he says we will not raise capital, the only reason he can make that call with any certainty is if he knows what the fine is and he does not. David you have to have sympathy for him. A bank on the run. They do not know what the facts are and what the doj has and what the book is for these complicated derivatives. It is hard to get a strategy when the facts keep changing. Ceo thatthere was one could make this happen, someone said it would be him. In that respect, there is confidence in the market with him. Jon the Balance Sheet he inherited, he did not build it. He is looking at it the same way analysts are looking at it. On the fine itself, he can say i will not raise capital but the market has repriced the very prospect of a cash call because he does not know how big the fine will be. David he is sincere but may have no choice. Jon exactly, and that is the choice with Deutsche Bank. The other story, maybe the least anticipated payroll number for the entire year, estimates 175,000 jobs added by u. S. Employers. Hype . T some height the most least anticipated jobs report this year. Always true until we get the numbers. It is always a big event. With the rate hike looming, we think it will happen in december. In case you have big surprises on the downsize, then maybe the market will reassess. We are on track for a rate hike. The bar is very low. That is why the excitement is not as high as it used to be. Alix at the heart of the debate is the phillips curve, if you get closer to full employment is that you will see wages move higher, we have seen wages move, at what point do you feel the balance of power shifts to the labor market . Distribution that show wage pressure, as they go higher, you see unemployment workers per job opening that is the chart i like to show to client. We have moved from the bottom right to the top left, unemployment to job openings ratio has declined, few unemployed per job openings, that means the Bargaining Power has shifted to the few that do not have a job for the people in jobs because they know their employer cannot find may be a substitute. That is why they have a better bargaining position and we have seen wages. Wage gains. Kit he is not looking at the number of jobs as much as the wage increases. He suggested even if it goes from 2. 6 to 2. 7 or 2. 8 , is that a critical number for you . Know, look at the trend, average Hourly Earnings hit the floor, more hiring and lowwage factors. Average Hourly Earnings of all the weights measures we have is the worst wage measures we have is the worst. We have come from the low twos to 2. 5 to two point 75 and a monthly bump. , upsiderolls comes up surprise, downside surprise, then the labor market comes out and says it is not what you think and they point to different data points saying that this labor market is healthy and there is a problem. The big question for politics and the debate on sunday, when you look at these numbers in the labor market, why are we in a position where someone can go onto a stage and say this labor market is not healthy and it has not recovered when unemployment has a four handle. The concern for the fed, they are saying, if we why is Wage Inflation not going up . I think it is coming. Focusing ont one is the Participation Rate. There is no official retirement rate which means six the statistics are 16 plus, no ceiling come in europe the numbers are for people 1665 if more people retire, the numbers are not effective and you have baby boomers here retiring. That is not corrected for the Participation Rate, a big drop in the Participation Rate which looks like people are leaving the labor force and people you are referring to sing saying that is slack. That leaves little room for different interpretations. Alix we have seen three big numbers that i feel i could set us up for a big surprise when we could get the numbers, auto sales, isn, nonmanufacturing isn have delivered to gains. Our expectations too high . When i put in the number it was higher some people have adjusted in the course of the last week, particularly nonmanufacturing number. If i have to pick a side, alix good to see you. Coming up, how is the labor market from a ceo perspective . We will speak with a chief executive looking to hire 35,000 employees. Up, alann coming krueger, princeton economics professor. Here is your first word news. Hurricane matthew bearing down on florida about to become the strongest storm to hit the u. S. Since 2005. It is just south of Cape Canaveral and has been pounding the 40 east coast with high winds and heavy rain for hours. It has been downgraded to a category three but still has wins up to 120 miles for our. People of florida, georgia, and the carolinas told to flee their homes. In haiti, the death toll is approaching 300. They expected to rise once rescue crews get to remote areas. The president of colby has won the Nobel Peace Prize for his efforts to end a civil war that has lasted half a century. He was honored days after colombians voted Peace Agreement with voted against a hes agreement with farc. A report that a group of highprofile defectors will establish a north korean government and the silent it in exile. And will live in the u. S. What reportedly tried to install the Democratic Political system in north korea with an economy based on chinas. This is bloomberg. David less than one hour from now, we will learn how many new u. S. Jobs were created in september. Economists will tell us what the numbers will mean for the economy but lets get you of the labor market for someone reading jobs, the ceo of party city, the leading party Goods Company in north america with a stock up 35 since the start of this year with 900 stores throughout the United States and canada and moving into mexico. You are in the process of hiring ready 5000 temporary employees for your big season, starting 35,000en hiring temporary employees for your big season, starting halloween. The northeast is a little tight. The entire labor market is interesting because we are looking for 35,000 temporary employees for temporary stores and Permanent Stores which we have 900. The folks looking for second jobs to help pay the bills, College Folks looking to make a few dollars. A party short window of time a very short window of time, eight weeks to 10 weeks and we have attracted a lot of labor. Permanent labor, the labor market is much tighter. Looking for people with some skilled labor, machine operators, mechanics are tough to get. 15 , 20 ying up in the for skill positions. From our normal wage bands, for mechanics and operators. , do how do you handle it you need it or pass it to the consumer . Efficiency and add automation. Robotics to help minimize the labor component. Opportunity to hire more skilled people. David the automation is an interesting point, eliminating the need for jobs, how is that changing . There are just fewer jobs to be filled. It is changing in the u. S. And china, in our major factory in china, the amount of investment in that Factory Automation is unbelievable. That factory provided us with roughly 25 million in product in2010, with 2600 employees 2016 we will do 35 million in product with 2000 employees. Even in china, automation moving the labor market. Alix the overall retail market, retail sales back up, auto and gas down for august, how sticky we hikee the new hires you hired if consumers cannot hold up like we expect. If we wind up seeing weaker retail sales and the Consumer Spending is not as easy as we have seen it, how sticky are those who have hired, when you lay them off or pay the less . The mechanics or fulltime employees . Not an issue for us, we need these people, our business is 12 months out of the year, global in nature, a wholesale business which is roughly 1 billion in addition to retail. We are feeding the market. Constant demand for different types of products. David are you anticipating demand up yearoveryear in terms of retail . Halloween moves from saturday to a monday for us, the dynamics as a result changes. Every year halloween has grown and we look for that to continue but the move to the date we are being conservative in guidance. Alix the elections, the next debate on sunday, you are looking to move some as nasty mexico. How would a but move some business to mexico. Are not moving business to mexico, we are Opening Stores in mexico and accessing a new market, a tremendous market for party goods. In the u. S. Come up when we opened up a storm, it has a nonhispanic market. Input import products to mexico from the u. S. Alix the election with no impact . None when it comes to mexico. David kilis donald trump shuts down trade with mexico. I find that unlikely. Alix thank you. The party city ceo. Coming up, the jobs number means more to the election then to the fed and we have this drive to prove it. This is bloomberg. From new york city i am jonathan ferro. Pictures down futures down by 33 points. 36 minutes and 40 seconds away from the payroll report. In london, up 8 10 of 1 the ftse 100, stronger because the sterling is weaker. He chart of the day early in the asian session, the 1985with a flash crash, to lows. Down 2 . For the u. K. Viewers, you will get this, lets go to alix. Alix the jobs numbers in 40 minutes and probably more important to the election then to the fed. I charted the u3 Unemployment Rate and compared to every time the white house switched parties, what a rise in unemployment does to the control of the white house. A rise in the 1960s, you go from republicans to democrats. In the 1970s, the Unemployment Rate came down but a very high level. Ou saw a party switch in the 1990s, a high Unemployment Rate, a party switch. A somewhat distorted in 2009 a similar story in 2009. Unemployment rate now not rising but it has not fallen further, it has plenty of and this could be an interesting factor over the next four weeks to six weeks as we move closer to the election. What matters to actual people, look at Consumer Confidence, we have seen a big client in that since 2009 and now my level since we have not seems as the recession. This is a chart that Hillary Clinton will want you to see and be happy about. Especially Consumer Confidence is higher. The chart that donald trump might enjoy looking at is the misery index. This is inflation rate plus the employment rate, we are well below levels we saw in 2013 and 2014 but it has gone higher. Misery leading up in the u. S. , the index continuing to climb, will that be a catalyst for a party switch ignited a donald Trump Victory . These are the kinds of questions to tackle as we get the jobs numbers, not about the rate hike in december but about the election in a couple of weeks. Jon the least anticipated payroll report in a wild and that makes me nervous. We are 30 minutes away from the jobs report, we have great guests for analysis, including bill gross, alan krueger, and the blackrock very own rick rieder. This is how we stand in markets, futures marginally negative and equities down across much of europe. Territoryn positive and the story is a weak pound. From new york this is bloomberg. Jonathan just 30 minutes away from the payrolls report. We set you up for the payroll report. Down futures dow futures down. The story in the last 24 hours in the fx market, a weaker pound in global foreignexchange. We dropped 123. 65. We dropped to 120 overnight. Alix the big story overnight jonathan was just talking about it, the biggest plunge in the pound since the brexit wrote referendum. Deutsche vega Deutsche Bank raising capital should rising legal bills require it. We are 30 minutes away from the september jobs report. The gain is 4 the estimate gain is 172,000 jobs. We will break down the report live with bill gross, alan krueger, and rick rieder a blackrock. David we are joined by megan murphy, mike mckee. Set the table, what do we expect and what are we looking for and what would we be surprised that . The consensus is around 170000 and the range is from about 220. ,000 up to i think anything below 125,000 on the payroll change would be an alarming signal of weakness and something north of 225 would ofan outside signal strength. Anything in the middle is pretty much more of the same for the economy so i think that makes it a low hurdle for a shocking payroll result. What will be more important is for economists and the fed itself to look at the income creation in the economy and see if we see the type of gains that will support a more robust profile for Consumer Spending. David we always talk about hours worked and that ticked down a little bit. That is actually very important to aggregate hours worked which is a proxy for gdp and exited Income Growth which i alluded to as a driver of Consumer Spending. A we get a. 1 rebound that is big contribution to income gain and also watch for upward revisions to august, that has been the pattern. Alix consistently september has really disappointed when it comes to estimates. Our expectations a little too high at this point . We got killer data going into the report. That is because the nonmanufacturing isn report, the employment component was extremely strong. There is no reason to think we would be far from that. 172,000 consensus, 172,000 consensus, for the last six months it has been 173,000. Incomeportant is the component of that, 2. 6 on a yearoveryear basis. That increase would have implications for the fed and for the political race the americans would be seen as a doing better. Those revisions, we have seen significant revisions to the august numbers that could wipe out a lot of bad feeling in the markets. Significant Market Reaction even if we do not get something outside the parameters of the numbers karl was talking about. And the important thing to keep in mind is this is the most important jobs report until the next one because we still have three jobs reports before the fed conceivably will raise rates. They will not do it before the residential election. Even if we get weird numbers today it will not matter that much to the central bank. David it may matter a lot to the candidates. Ifyou are hillary trump you are Hillary Clinton donald trump what are you looking at. Hillary trump, i like it. This is one that really matters for the candidates. On jobs a sharp contrast throughout the candidates and it is really a referendum on obama and his tenure in terms of economic and jobs growth. Hillary clinton will be looking for another solid number to point to recovery. Will really point to it as the record of job creation under his eight years as president. On Donald Trumps side we saw this with mike pence, is a really constantly referred to this as the crisis we had and they consistently use that narrative whether or not is is it is true or not they will be looking at the numbers for any sign of weakness. David that is megan murphy our Washington Bureau chief, joined by Carl Riccadonna and by Michael Mckee. We will turn to one of the leading labor economists in the country, alan krueger princeton economic professor and former chairman of the council of economic advisers. Always good to have you here on jobs day. What is your focus this time . Alan you are looking at the top line number and underneath that you are concerned about participation, wage growth, hours. If you look at total hours growth, number of workers times hours they work per week and that is often a good indication of gdp growth. Jonathan ahead of the president ial debate this will get politicized. Since the last time the fed hiked december 2015 through this year what have you seen in terms of the labor market . Wages pickupseeing and we see job growth be solid. The report we got on household Income Growth in 2015 was truly impressive, fastest growth in real median income. We are continuing to see progress from the deep problems created by the recession and i think it is important we build on the progress. Alix i want to point out that not everything is perfect. If you look take a look at the chart, the misery index, the inflation rate plus Unemployment Rate and we are we way down from 2012, but we have started to move higher and this is a boon for trump in some capacity. What is moving this higher right now . Alan i do not think this helps donald trump at all. There is no question the American People are better off than they were eight years ago and maybe they missed the fact that president obama was reelected four years ago. The misery index is a bazaar measure, it is very low because unemployment is low and because inflation is low. Right now inflation is too low. The Federal Reserve is trying to lift inflation and if they are successful which would be good for the economy, that could raise the misery index. Work foru did president obama and you are an in for my advisor for Hillary Clinton i want you to play for the red team. Would you be worried about if you had your old job in the white house . Alan i would worry about shock from the outside. The crash last night was scary, i went through one in 2010 and you worry that can disrupt confidence. The slowdown in global trade, it is ironic that don trump is running against trade when we are seeing a retrenchment from trade and we are seeing manufacturing jobs come back to the u. S. One would worry that if we see a sharper decline in trade that will hurt Companies Like party city which as the ceo mentioned, export a broad. Jonathan you mentioned the fast crash and you can talk us through that. If you eliminate risk taking essentially what is happened is you have made the markets riskier and i wonder how much has been sold since the financial crisis when you are in the white house and now how do you see things in that regard . Alan that is a excellent question and i think the Banking Sector is much stronger than it was eight years ago if you look at the capital that the banks have and we brought more of the shadow Banking Sector under regulation. I worry about risk building up outside of the formal regulated sector, but the u. S. Has gone much firm that further than europe has infarct as far as requiring banks to raise capital. David to follow on jonathans questions, we are letting the banks do less and part of what they are doing less is acting as a buffer when there are rapid increases or decreases in the marketplace. I think the whole system is safer, but there are areas where you worry about liquidity. In our market i do not think the flash crash was caused by liquidity, but i think that is something important for regulators to monitor. Jonathan what is the first thing said to you when there was the flash crash . Alan find out what is going on. After that i had monthly meetings with the chief economist because i thought it was important we had Clear Communications so we understand what goes on. Up therealso brought is not a lot of volatility right now within the markets. Equity, fx, or the treasury markets. Uncertaintyot of out there. Why do not think that is being reflected in the data points we see in the markets . Index is theity low so i think that suggests that the markets are not reading that much risk out there. Alix is that the right read considering the election and the fed . Alan i think the markets have not really incorporated the risk of a trump presidency. One of the reasons i think the markets have been complacent is we see less volatility in the real market as well in even though we get jazzed up about the monthly jobs report the monthtomonth movements are even lower than before the crisis. A lot of indicators show less volatility in the real economy. I do not think we are back to a permanent state of great moderation and i think it is important for investors to consider risks. Alix alan krueger sticking with us for the next hour. Lets get an update on what is making headlines outside the business world. Just Hurricane Matthew is east of Cape Canaveral. The storm has been downgraded to category 3 with maximum sustained winds of 120 miles per hour. In 300as been locked out homes and businesses and the center of the hurricane is expected to stay over the state for most of the day before moving into and near georgia and South Carolina. 2 Million People were told to flee their homes. Columbias president is donating his Nobel Peace Prize to the country. His the award was announced days after voters in columbia narrowly rejected the deal and santos is trying to resurrect it. The pound fell more than 6 against the dollar, falling to 18 as one dollars 1. 18. Traders speculate the initial decline may have been caused by humor error with algorithms leading to trading pressure. Global news 24 hours a day, powered by more 2600 journalists and analysts in over 120 countries. Chandra and this is bloomberg. Jonathan i want to bring you breaking from the ecb president. Repeating the statement and comments from the introductory remarks of the last heaven or Council Meeting in the News Conference he says qe could run until the end of march or longer. Maybe seeing rate that current are lower levels for an extended here. Time. Largely repeating what he said. We will be speaking to the bank of italy head and ecb councilmember governor biscoe later today. Up, we are less than 30 minutes away 18 minutes from the september jobs report. This is how we trade in the markets, futures are largely negative. The ftse is outperforming at the pound is getting slammed. From new york. This is bloomberg. Alix this is bloomberg and i this is Bloomberg Markets bloomberg and i am alix steel. Look at the Participation Rate. That will to you how much slack this notion of our people coming back into the labor market or not. If you get an Unemployment Rate coming down because the Participation Rate is not telling you people are coming thatin, that is a signal there is not much slack in the labor market they think there is. Inx for the expert on slack the labor market alan krueger is with us. If you take a look at a longterm chart of Participation Rate it has been going down, the last 12 months it has been inching higher. Is that rise sustainable . Alan i think we will get back on the trend we have seen for the last 20 years which is labor force is patient declining and the reason i think that is twofold. One, we have a continuation of past trends which is womens Labor Force Participation edging down and prime age men produce patient has been declining for 50 years. Then come even more importantly we have an aging population and the decline in the labor force Participation Rate over the last 10 years exactly matches the increase in retirement rate so that primary reason we saw labor force reclined was not because of the Great Recession but because baby boomers reached retirement age. Alix there was a great cbo production of demographics and we can bring that up. Cbo projection continues to go down and labor force Participation Rate Holding Steady. Does this means we are eating up slack in the market are there is more slack . Alan to the extent there is slack i think it is younger people who went to school you longer in part because there are benefits of education and because of the recession. I think we see stabilization a label force presses ovation Labor Force Participation for that group. We are not seeing people at the labor force comeback. I think we will go back to the trend we were on before the recession which was declining labor force per because we are becoming an older society. Unless be reform immigration, do Something Like the Bipartisan Senate bill which passed, i do not see many forces that will reverse that in the u. S. Over the next decade or droop. Decade or two. David we hear increasing that that people are working past 65. Is there the possibility that would of rejecting something that would get 70yearold in the workforce . Alan the group where we have seen a rise in Labor Force Participation is among older workers, 65 or older. The problem is they are increasing from a low base. It is not rising fast enough to outweigh the fact that we are adding more and more people in the over 65 bracket. It is sort of racing uphill against the wind, if you will. I think it will matter most that we are an older society, but there are changes we can make to raise Labor Force Participation. David in theory shouldnt that average out that you counteract the demographic change as people work later in life . Alan it is a very mixed group above 65, there are many who cannot continue to work because they have injuries and we see that more and more even with younger populations where disabilities are a serious barrier to work and then you have others who have easier jobs in some sense and in better health. That is quite a mixed group in the older population. Alix you mentioned the changes you can make and japan wants to make those changes. They want to lift immigration and get more people in. What will be the solution for the u. S. . Alan the u. S. Is in a much better situate position that japan demographically. Japan will be the Oldest Country in the world before long. We are aging, but not as quickly as japan. On top of that we have a higher share of population that are foreignborn. We have grown because of immigration. Immigrants assimilate in the u. S. Better than they do in japan and asia for that matter. Great to have you with us, Alan Krueger Princeton University is sticking with us. We are minutes away from the september jobs report. The number, 172,000 jobs forecasted. S p futures up off by four points. This is bloomberg. Jonathan from new york city this is bloomberg and i am jonathan ferro. We are looking for something around the 170,000 mark. The previous number is 151,000. Allie earnings expected to take up year by year. Negativere marginally and the pound is getting battered in the fx market. This story is in the fx market and lets get to the morning meeting where we hear from what chief banks are looking at. York,g us now from new bread. Joining us from new york, brad. What are your thoughts . Brad clearly we had a flash crash exactly at the wrong time in terms of market liquidity, 7 00 p. M. New york time is sort of the dead zone. A basically just australia and new zealand in the market at that time. Given howacuum and involved machines in electronic trading is when something starts to happen it snowballs quickly especially in that time zone and that liquidity environment and that is what we had last night. All of the machines backed away from the market and there were no bids to be found in after a couple of minutes it so corrected, but clearly a liquidity park it and liquidity pocket and the market had a big move. Set this upwant to for payrolls. He usually anybody in the market is conditioned by years of event and this is very raw, it was yesterday evening. If we get a big outside moves on the payroll report and cable moved to theews downside, who will want to come in a make bids . Brad that is a good point, it will keep people on edge. People are figuring out what they need to happen and prepare for the next big event which is in a couple minutes. Liquidity could be more challenging than usual given what we had last night and if we get a big number that sets the market off we did have a bigger move than you might expect otherwise. Jonathan i wake up this morning i look ahead to payrolls and usually it is exciting and it feels like a low anticipated day. What is the story and how are you set up at jefferies . Brad i think the parallel to may was there and i think we had the we had the blind side that set us off. We had a dollar breakout in may and a lot of fed speakers on the hawkish side and expectations for june rising and gold broke down and we had the bad payroll number in the first week of june and i complete the corrected everything. We are set up in a similar way, dollar has broken higher and gold has broken lower and expectations are rising for december. If we get a curveball we will have a big correction in the fx market and the bond market. Somethingking for more status quo, jefferies is at 180 and the market is at 72 so it would take a big miss to set things often the parallel is the main thing there alix . There is a story in the market that no matter what the number is the dollar will decline because no number will be big enough to change the great directory over the next years. Do you buy that agreement . Think it will be more about 2017 at this stage. Unless we get a really bad number. If it is a status quo number we will say december is a done deal. I think the dollar will continue to rally, but maybe not as powerfully as the next few days. 2017. E will look at as we start pricing more expectations in 2017 the dollar rally will continue. Benign we could lose a little steam on the dollar rally for sure. Lets get the economist guide to the payrolls report. Ut could they breath and read it and do not look at the headlines. Brad is forced to get on the phone and talk to clients and that is a tough job. How will you read the payroll report . Alan i will not put to much weight on the payroll report goes all of the under other indicates of the jobs report are coming in solid. On up limit claims are at the lowest rate in decades so i would give a wide margin for this report for it to change my view that the job market is continuing to gradually recover. Alix when you take a look at the individual numbers we talk about Labor Force Participation and wages, where is the hidden risk for the fed here . The fed is not of one mind, you have to bear that in mind. For differentok things in the report and they will get two more reports before december which is what is most likely meaning that they will change rates. The hawks will be looking at wage growth and how slack is eroding and the doves will be looking at how slack may be less. Jonathan what is the conviction trade in a couple minutes time ahead of the number . Ofd we are in the process climbing a wall of worry and if we get to 105 you will start to see the huge along a position start to unwind. I still like going higher. , thoserad brechtel numbers coming out in less than a minute, alan krueger of Princeton University sticking with us. Here is how we trade. Off by off features four points and the dow off by 22 points. You have a rally underway in the u. K. With the ftse up. A big part of that has been the weaker pound. You can take a look at where the 1. 23. Is trading, 6 slide in two minutes overnight. We have seen a recovery since then, but the pound is getting beat up in the dollar continuing to climb higher. This is the dollars biggest weekly gain since february and yields are backing up into the number. 10 year yield biggest weekly gain ever. Erik schatzker is in d. C. With the numbers. Jobs, that is the increase in nonfarm payrolls for the month of september. Hourly wages, everybody wants to know what they are up 2. 6 from a year earlier and up 0. 2 from august. The on a roll Unemployment Rate 5 , up from 4. 9 as only as almost 450 thousand people joined the civilian labor force bringing the Participation Rate. P to 62. 9 it does add up to a slight miss butus economist forecasts, this jobs report is not the kind of political football it could have been in this election season. A really strong number and the fed would have been under increasing pressure to do something about Interest Rates at the next meeting on november 2 six days before the election and a really weak number for the economy might have become an even bigger issue on the campaign trail. If you are janet yellen, call it a goldilocks drops report, not too hot, not too cold. The data suggests the labor market remains solid. Wages continue to slowly accelerate, more americans are looking for and finding work in there appears to be slightly less slack. The average work week in the month of september was 34. 4 hours, an increase of 0. 1 hours from the month of august. You might wonder about revision, there they have been a big deal in previous months. Not this month. There was an increase to the previously reported number for august at a decrease to the previously revised number for july, bringing us to a net change of minus 7000 jobs. We are going to get one more jobs report before the election on november 4 and it could be affected by Hurricane Matthew currently off the east coast of florida. You. David, jon, back to jonathan the median estimate was 172000 and the Market Reaction straight to the front end of the yield curve yield curve where it is a marginal curve. Softer a marginally dollar, just rolled over at the top of the session and pretty much flat unchanged on the day. Similar story in futures, a subtle marginal move it raising the losses on the session, up 37 the subtle story in there, marginal downside for price, the followthrough twoyear yield a little bit lower. Futures just tech higher ahead of the market open in about an hours time. We can head over to the Bloomberg Radio where tom keene and Michael Mckee are speaking. The question now is how the treasury market trades all of this and we would like to of janusill gross capital. Andhave seen the numbers one commentator out with the phrase meh. Except matter to anybody shortterm treasury traders at this point . Bill i do not even know how you spell meh. But in any case, pretty milquetoast and pretty on the number in terms of what we were expecting. The work week was flat and as you mentioned up. 2 so there is nothing much there to keep the fed from raising Interest Rates whether it is november or december i am not sure. Banks tend to be weak kneed at the moment. There are only three hawks willing to back up their words on dissension at the vote last month. The growing outcry from Financial Institutions about negative Interest Rates are starting to have some affect often rosengren is the most recent example, he sort of did a 180 with the addition of the doj and ecb boj and ecb may be less policies will move to dovish and a little more price bullish. Tom good morning from washington. You are terribly missed here and never but he wants to know what you will do. The inflation of nonfarm plate payrolls moving averages to threemonth off the bloomberg, 190,000, 2000, 2004000 and for the first time i took a president ial moving average of nonfarm plate payrolls and what a success, 212,000. I have never seen the conflation in of the trend in job formation. Why are we so miserable if we are generating a good number of jobs every month . Question. Is the old i have my moving averages and they are right on the money in terms of what you mentioned. They are gradually coming down, that is what happens during recovery. I think the unhappiness comes from wages. I think the unhappiness comes from the real nature of wages over a 510, 15 period of time and i think labor is beginning necessarily a big porridge bowl full, but they are starting to feel they are turned. It has been this longterm trend of capital versus labor and start market stock market versus wages and i think over the next few years we will see some type of shift in fiscal policy that advantages labor as opposed to business and capital. Michael i do not want to make too much of this because it is one day trading, but when you look at the Market Reaction to this number and over the last couple of days we seem to be seeing people sell treasuries around the world. The bond market in the 10 year note yield 1. 76 and the two year 85 basis points moved up since jobs report as we said and germany three basis points back into positive for the 10 year. The japanese 10 year yield is higher. Is there starting to be a change in bond market psychology about inflation and other risk Going Forward . Inflation not think perhaps we are seeing it take up a little bit in the pce and the United States and above the line elsewhere with the exception of japan, but i think japan has changed the nature of the game to some extent. Quantitative easing they continue, but they have the fixed 10 year at 0 and i think when that happened it sort of put all of the other bond markets in play. It basically meant that the u. S. Treasury and gilt market did not oneforone, jgb but it produced one some type of marginal increase or possibility of increase that allowed inflation to have some type of affect and allow the fed to go ahead in december and raise rates. I think an analysis of what is going on with fixedrate policy in one country which may spread to other countries is important and i think that is what did it in terms of the two day temper. Antrum in germany that is another story. Central banks are starting to move in another direction. Tom is the other direction the idea of a stronger dollar and will he be a brutal move . We go any number of ways here. Talking about a euro that is stable and will not strengthen and we have the soiree in britain and the united kingdom, but the you look for stronger dollars. Is that how you looked it work daytoday in janus . Bill i would say longer term is where i hang out. The recent trend in the dollar, the exwife the recent trend y and dollar, the d, x, all of them together. I would say it is cyclical and i would say that world needs a weaker dollar, not a stronger dollar. It is the worlds reserve , as it strengthens and other currencies weakening we can is a tightening effect and it reflects tightening in terms of higher yields in the u. S. Relative to the euro land or japan or the u. K. I think it is a negative trend, certainly for emerging markets, we see the mexican peso down today again and that is the leading emerging market currency. To me it is tightening that the fed has not really initiated. They have only moved up once. I do not think it harbors well for Global Economic growth. I think the world needs a weaker dollar. Janusl bill gross from capital, we will come back from him talking about what is been happening in the jobs market and we will get his view on what the fed will do Going Forward in just a moment. That was Janus Capital bill gross with tom keene and Michael Mckee. Next, more reaction from bill gross and we will talk with alan krueger here with us. This is bloomberg. Alix this is bloomberg. Coming up black rock cio of Global Fixed Income rick rieder. Jonathan from new york city this is bloomberg and here is the state of the markets. Higher, the ftse stage stronger. Initially the kneejerk reaction was yields rolling over a touch. They are now unchanged. The dollar was stronger going edge of the reports and a touch softer coming out, but no drama. Dollaryen showing a little bit of strength. The cable rate, the move of the last 24 hours as we mapped the flash trip flash crash. Another story i want to get through quickly is lloyd, the u. K. Government will resume selling taken this bank within the united kingdom. They have a circa 9. 1 holding in the reticular bank. Stock price investors resume selling as well. David we are back with alan krueger of princeton who served as a chairman of president obamas council of economic advisers. We heard it called meh these job numbers and they have been called goldilocks. Is this good or bad . Alan this is a note i think jonathan put it well, this is a note from a report. If you think about the flash crash and how the markets could have been on edge this morning. The Household Survey was stronger than the payroll survey, but i would say both surveys suggest this is steady as she goes and we are continuing to recover. David does the Household Survey being stronger tell us anything . N i think that the hawks the doves will look at this and say labor force for dissipation rose and it looks like participation rose come on the other hand it is a noisy report so i put some weight on the Household Survey, i tend to put maybe a third of my weight on the Household Survey and two thirds on the Establishment Survey so this report suggests we are going along about the same pace as last month. David that is alan krueger, he will join us later in the program. Coming up, more from Janus Capital bill gross. This is bloomberg. Jonathan from new york city this is bloomberg. The payrolls report is out, no. Rama, steady as you will futures pretty much unchanged from about 3042 minutes away from the cash open in new york city. We get head over to tom keene and Michael Mckee on Bloomberg Radio with Janus Capitals bill gross. Michael 156,000 jobs were created with 5 unemployment and onare both with bill gross Bloomberg Radio and we welcome everyone joining us on bloomberg television. Before the break you suggested this number is enough to keep the fed in play. I do not know whether it is because you did yoga or did not watch the 49ers game last night, but you feel very relaxed about that. You do not seem upset at all that we are going to siena just a rise going to see an Interest Rate rise. Bill i think we will in december for sure and maybe even november, they have promised so much that at some point they have to come out and do something or else their credibility is really going to sink to a low point. I think the fed will raise Interest Rates. I have been thinking the fed should raise Interest Rates for a long time if only to provide for a more attractive savings rate in terms of shortterm yields, but longerterm yields i think Insurance Companies and banks and Pension Funds are rather desperate for income and the only way to do it really is to extend out in terms of risk, which probably isnt a good idea or to extend out in duration. Duration provides nothing. I think the fed will move, they are cautious and they will move perhaps every once every 912 months unless circumstances change. I think an upward move renormalization is appropriate at this time. Tom you made worldwide headlines a number of years ago talking about 10 years of financial repression. Stephen major at hsbc reaffirmed of gross call the other day 3. 5 10 year yield of the 17 and untilularly lower yields 2021. The you assume even if the fed brings up the short term in a curve, flat curve forever and the idea of financial repression for our viewers and listeners forever . Bill forever is longterm and you are baiting me with that. Yes, for a long time and rudolph and reinhard with their 10 years or 20 years of the biblical equivalent of seven years feast and seven years famine which would be financial repression in terms of the latter, it is something that has to be with us. We build up leverage in the world built up leverage until 2008 and by the way, where you are in washington the imf is notng out strongly with with a suggestion, but with the statistics that emerging markets and developed markets both in the sovereign and the private sector have increased their leverage significantly since then. Because of that, because of this higher levered world which i do not think we have ever experienced in this era of financial is a witch could go 50, 60, 70 years. I do not think Central Banks can afford to raise Interest Rates because a quarter or a half or 100 basis points might just rake the system. Tom this is critical, you run an unconstrained fund. Buried in the green book of the imf is a terse sentence about the damage the great distortion is doing to Insurance Companies, to pension, to longterm investable assets, help us right now. Actualis bill gross aerial assumption on a blended 6040 portfolio . Are you below a 4 actuarial assumption . Bill you know that is hard. I have been around for percent or 5 and i would assume equities at 6 or 7 and bonds or 3 and you mix them at some portion and lets say 5050 and that is what you get. Most Pension Funds are at seven or seven plus and most Insurance Companies you cannot measure it that way, but you have liabilities that are significant to what they promised. Mine pop on main street, we talk about companies and the op asational mom and p savers are the supporters of capitalism go forward. They either save more, which sends the system into a mild reverse, or they take their andy out of the bank figuratively stuff it in a mattress and that itself breaks down financial is asian. We are at a point financial. S asian financialization it will be an interesting challenge Going Forward with Monetary Policy and with fiscal policy and who is elected. Michael colden in your most recent market commentary you in your wordst is capitalism threatened by the ongoing strategies of the Central Banks because we are seeing inefficient allocation of capital relative to risk. Bill that is true. Lower Interest Rates keep a common zombie corporations alive. That happened in japan and is happened for 20 years. That is a decent example and lets put some common sense into some central bankers model to is notent that risk proportionate to return or put it the other way proportion return is not proportionate to risk and investors and businesses do not invest. It is the margin, it is the nim for banks and the spread as tom asked in terms of longerterm liability it short of sort of freezes the system. Basically that is the point we are at where investors and savers basically look at their options and decide that they are not so attractive and capitalism depends upon the assumption of opposed to no risk and if investors and savers and businesses are not willing to an attractive spread, then capitalism itself the margin starts to turn inward. Michael you mentioned the election and i would be remiss in not asking you whether or not the election will be a major investable event before or after november 8 . So, but obviously i do not know who will win. I think it will be a 13day reaction. To be fair, i think all countries are talking about the United States, but there are elections elsewhere as well and referendums in 80 italy and so forth. Everyone begins to speak to infrastructure and that is the easy word in the code word and something both parties can get behind. It is more than infrastructure. What has to happen is a program ,o take care of individuals displaced individuals in the workforce and we see that obviously in many numbers today to the extent that you cannot take care either through increased Social Security or some type of benefits and the consumer, which is the ultimate driving force behind capitalism, cant simply get started. Jonathan that was Janus Capitals bill gross with Michael Mckee and tom keene on Bloomberg Radio. We take you back to the markets and count you down to the cash open. No drama in the market or the cash jobs report. This is bloomberg. Jonathan a warm welcome to bloomberg. Payrolls friday. As steady as she goes for the payroll report, futures marginally positive. Up one point on the s p 500, 30 minutes away from the open. If you want excitement and drama, it is in the fx market. The kabel drops in the overnight session. Alix here is what you need to know, the big story overnight you had two minutes of chaos and. Ging asian trading traders say the slump was exacerbated by computer initiated sell orders. Raising capital that should mounting legal bills require it. September payrolls raising by 156,000 jobs, under the estimate of 172,000. David we want to go back to the jobs numbers report and we are us is rickoining reader, black rock cio of Global Fixed Income manages over 1 trillion and he is here to weigh in on the latest read on the labor market, but first, we want to go to erik schatzker. Erik it could have been a political football, but not this time. The jobs report for september as you have been characterizing it, not a lot of from a. Slightly lower than expected if you are looking at the headline number, the nonfarm payrolls at 156 156,000 for the month of september. Same for the Unemployment Rate that ticked up to 5. 0 from 4. 9 . Ever slow ever so slightly missing forecasts. Some of the things that really matter are on target and improving wages up 2. 6 from a year earlier, that is on target relative to forecast and accelerating the same goes for weekly hours worked. 34. 4 last month, an increase from august. As you mentioned, an increase in the labor force for dissipation rate. We had almost 450,000 americans joined the labor force last month, the secondbiggest increase this year at least if you compare it to february and we had slightly more than 550000 and that helps to explain the increase in the Unemployment Rate when you have so many people looking for work. It couldve been the political football. If we have seen a big number it could have caused headaches for janet yellen. Based on what we see here, that does not seem to be a big chance of that happening. David there may not have been too much drama, but they matter to a lot of people. Both donald trump and Hillary Clinton have made job creation central to their campaign. Mr. Trump at the core of our agenda are three words, these are so important, they solve so many problems. Jobs, jobs, jobs. Mrs. Clinton we need to job new jobs, good jobs with rising income. Mr. Trump our jobs are fleeing the country. Mrs. Clinton my jobs would create at least 10 million jobs in the first four years of the economy. Mr. Trump and i will be the greatest jobs president that got ever created. , erik there you have it schatzker still with us from washington, d. C. And we are joined by megan murphy and alan alan krueger. Hillary clinton, donald trump, what is in the jobs numbers for each of them . Megan there is really something for both of them. We were looking to see if it would exceed expectations or a big mess. They have a sharply contrasting derrida on jobs and on how obamas economic stewardship has been. What we see in the numbers, slightly lower than expected, but it shows the remain the economy remains on track. He will point to the second month in a row, the decline in manufacturing in states like ohio, pennsylvania, he will point to not really fast weight growth and how important that is to families struggling to get a foothold back in the recovery. For her, the look at this is the labor force dissipation rate particularly about bringing women back to the labor force, how crucial that is. She will point to the continued glide of this with looks like continued job growth and hopefully that will feed into a bigger better pickup and wages. Alix you are an informal adviser to the clinton campaign. The labor force Participation Rate goes up and employment goes up, it is hard to tell the public how that works. What is the spin to the public between the campaigns . Readthink it should be that the economy is continuing to cover. Unemployment a sickly moved basically moved study. Similar job growth is to last month so we are expanding and digging our way out of the problems created by the recession. One sign of the progress is weighed growth is the strongest it has been in seven years, so there are clear signs of progress. We saw evidence of that when we got the report of Income Growth last year which shows the fastest household real median Income Growth since the Census Bureau has been collecting data and more importantly the bottom grew more than the middle of the top. Jump on the point that alan was making, people are earning more money. If you go back, i have been digging through the report together figures and doing back to the envelope calculations. The average american is earning more or less 837 a week. People are making almost , slightly less than 45,000 a year than they were year ago. Not just a wage increases, but senses data suggesting things were better in 2015. Some other political questions that are important, what is the level of optimism among the groups that feel left out . Among blacks for example and hispanics come i big increase in the number of people joining the labor force last month. Work, sof them found the Unemployment Rates for both ethnic groups come already higher than for white americans rose last month. It is a bit of a window into how people might be feeling heading into the election. Jonathan this administration is incredibly defensive over the record with the jobs market. In some respects, he did come in when things troughs and that was not down to president obama. Reflecting on the last four years, what should they have done that they have not done that could have made the labor market better . Alan i think there has been a huge amount of progress. When the president walked into office we were losing 8000 jobs a month and now we are gaining and we have the largest streak ever. The president wanted more support in terms of infrastructure. The president proposed Immigration Reform which congress to not act on. All of those things i think would have strengthened the economy. David coming back to the election, you say there are key battleground states such as ohio and pennsylvania. More of the same is not very excited. You need to get out the vote. When you say you will change things you motivate people. How can Hillary Clinton motivate people to come out and vote if it is basically, we will keep going . Megan i want to get back to what erik was saying in terms of in the states you just mentioned it goes exactly to how white, workingclass families are feeling and what it really will come down to is can she get people to believe in her vision . Can she get people to believe in her plan for putting in 10 million jobs over the first four years . Can to get people to believe in her ability to get comprehensive tax reform some sort of spending that we have been waiting for or will they have look at donald trump and say, this is Something Different and it is so antiwashington we have never seen anything like it and i would i would rather put my chips on someone with a whole new game. And to davids point, good enough, right . Are we at full employment now and what about different racial demographics . Think the technical definition of the technical definition of employment, we are awfully close. Does that mean we cannot do better . We can certainly do better and i think what secretary clinton independent out analysts said would create 10 million dobbs and Donald Trumps plan would destroy 10 million dobbs 10 million jobs. She has a serious infrastructure plan on like the other side which has as far as i can tell new details about what they would do on infrastructure. Those are the steps that can help build on the progress we have seen. Ofhink the characterization the economy that jobs are fleeing is just not right. That is certainly not what this report and past reports have been telling us. We can certainly have faster growth, but we have made a lot of progress in the problems caused by the recession. Just want to address the plans on the other side. There is no question that donald trump has been candid that he has not fleshed out the specifics. But they are assuming as if he does win the presidency actually it would be much of the paul ryan plan that has already been proposed and much of the detail in terms of how we get through and infrastructure stimulus and how we get through tax proponents will be taking a page off the houseplants and that is what they are pushing and selling Going Forward. Alan what really scares me is when he makes comments like, things are not going well we can just renegotiate the debt. That kind of thing shocks markets. To cavalierly casually say we could just renegotiate the debt, i think is a real threat to the World Economy on top of the threats he made to the World Trading system, the trait to deport ilya the workers in the u. S. , i think all of those things would be harmful to the economy and it is hard for me to see how he would govern differently than the way he is running his campaign. Erikhan bloombergs schatzker in d. C. , thank you for the time, megan murphy will of course, not get a weekend this weekend. Here is emma chandra. Emma Hurricane Matthew is about to become the strongest storm to hit the u. S. Since 2005. The hurricane is just south of Cape Canaveral. The hurricane has been downgraded to a category three, still, it has wins of one after 20 miles per hour. 2 Million People in florida, georgia, and the carolinas have been told to flee their homes. In haiti, Authorities Say the death toll is approaching 300 and they expected to rise again once rescue crews get to remote areas. There is a report that a group of highprofile defectives will establish the defectors will live in the u. S. And the government in exile reportedly would try to install a Democratic Political system in north korea with an economy based on china. Columbias president is donating his Nobel Peace Prize to the people of his country. He was given the peace prize for his role in the agreement to end the civil war. Santos is trying to resurrect the deal. Global news 24 hours a day, powered by more 2600 journalists and analysts in over 120 countries. I am emma chandra. This is bloomberg. Minutes past the jobs numbers and here is where the market trades, flat, flat, and flat through to the s p with from a fourpoint loss to a twopoint gain. No big movers in the jobs report and no big movers within the equity market. Individual names, we have some moving on the up and down side. Gap up 6 , samestore sales were down 3 in september. Better than estimates, but to me it was the Old Navy Brand that has gotten hammered in the past rose 4 on backtoschool. Honeywell said thirdquarter was the lowest earning growth this year lowering the top end of the 2016 guide and cheat gpb industries down with preliminary earnings missing estimates as the thirdquarter growth rate disappointing. Look for earnings to start trickling out over the next few weeks, revisions to 2016, and this year front and center. Still ahead, an exclusive interview with the bank of italys governor and concerns over European Bank. This is bloomberg. Ix this is bloomberg 100 56,000 jobs added in september below forecast. Here is the ceo of principal global investors. The playbook this week before the number, stronger dollar, yield curves backing up. Does i continue to be the playbook . To an extent. I think what the number shows is the u. S. Economy is still on track for 2. 5 2 two. 5 growth as long it is not political with the process. One of the encouraging features was the increase labor force per dissipation rate which suggests there is a bit more runway for the economy to continue improving. It is basically a positive message about how things are going in the United States. Alix and wages up 2. 6 . s are going to be the trade . In wages. is prices will be less, i think you well. E real wages growing i think it is a benign set of circumstances if they can get it keep it going. It should support a stronger dollar and should continue to mean that the u. S. Is the leader in world growth. I am certainly of the view that the dollar should go up against the euro, let alone against the pound which looks to continue to be weak. David what about gdp . Numberse consistent with wage growth, but the gdp is not there. Jim the real gdp numbers and i talked to quite a few economists, they are hard to understand right now. The technological change is actually quite hard, it is varying and hard for the gdp deflator to pick up properly. You also have demographic change which is tending to push down the price basket people are buying. If you add it all up i suggest the gdp may underlying be a little bit better than the real numbers show. Alix you are an investor and need to make money in the market. Do you subscribe to the idea coming around that you want to sell longterm treasuries and go in inflation linked bonds . That be the trend . Jim i do not think so, i think the most important trait is to not lose faith in u. S. Business and continue to buy equities. I think the fed is on to raise rates once more this year, i do not really care if it is december or november. That would leave 5075 basis points at the end of the year, that does not feel bad against 2 two. 5 growth, that does not feel bad with rates moving up to one point 1 . I do not see big fundamental pressure on treasury yields. David on the equities side we do not see a lot of pressure on earnings. We have had several quarters of declined earnings. Do you see that turning around . Jim i think the earnings will be steady a little bit next year, it will not be a blowout year or one of those 15 20 earnings years. It is just not in it with the amount of deflation. I would suggest you see slow growth in earnings and the economy. That will be enough for current ratings and low yields to be a decent equity market. Jonathan talk about the idea of maturity transformation. Ecb president was talking earlier, if you rely on that you have a problem because the yield curve is so flat. D you see that situation improving for the very basic banks that take deposits and led them out . Jim i think the problem with the Global Banking system is that it is undercapitalized. As we look back, the recapitalization of the u. S. Banks after the crisis under the george w. Bush administration and completed under president stroke,s been a master it left the u. S. With a wellcapitalized Banking System. Unfortunately the rest of the world didnt do that and that is one of the main weaknesses. That is why very easy Monetary Policy is not to be the Effect People expected. Jonathan so you are stuck between a rock and a hard place at Deutsche Bank because you want to simplifies the business and then once you do that you will struggle to make money and on the other hand you have to raise more capital. Do you think they have to raise more capital regardless of what happens with the doj find . Jim of course they do and they are not the only European Bank that does. Barclays started to raise capital and i started i thought that would be the start of sanity. It did not get followed through badi think that is not only for the european Banking Sector, but the main reason i am less optimistic about the european economy than i am about the u. S. Brexit is important, but i think the under capitalization of the Banking System is also important for the negative side of the european economy. Jonathan you want to invest in a company and know what the strategy is. What should these banks but come . I understand what credit swiss Credit Suisse will become. For the Deutsche Banks of the world, what will they become . Is not a huge blender, it is trying to be a european goldman sachs. Theyat is what it is about should focus on that. As we know from the development of u. S. Investment banks and u. S. Retail banks, the two are not necessarily compatible businesses. I think they should decide what they want to be. Ubs, Credit Suisse could be the worldss best credit managers if they focus on it. Deutsche bank could be a european competitor. They have to slim down their Business Model and get focused and do it. David jim mccaughan, thank you for being with us. I want to break news. Reed hastings, the ceo of netflix is speaking in new york and we had headlines saying that china is not looking very good for netflix. They are down about 1. 6 in pretrading. Recently there were rumors that may be netflix could be the target of an acquisition ahead of earnings that come on the 17th of october. Market netflix is moving in the premarket. They are looking for growth outside of the United States. This is bloomberg. Jonathan from new york city, this is bloomberg. In the the state of play jobs report, 156,000 is how we came in. Slightly higher than the previous jobs number of 151,000. Wages came in line, higher than the previous month, 2. 6 . Capturehow the market the story. Futures, positive, 18. 17 points higher. S p 500 futures up. 5 . The ftse up by 1 . The cable rate getting absolutely hammered over the last 24 hours. It yields a little bit lower and the cash open from new york is next. This is bloomberg. Jon from new york, this is bloomberg. Ide futuresns up 15 points on the dow. The action in the other asset classes, the headline is the cable rate, a flash crash last night. In at 173,ng treasuries soft around much of the week, equities premuch unchanged on the week so far. Get the final trading day of the week started with alix steel. Alix one hour into that jobs number and you are seeing a slight rally underway. All major indices up. 2 . S p futures did reverse moderate overnight losses. We had the pound volatility down 6 in two minutes. Now commit futures are able to trade a bit higher. The average jobs they move this year,. 8 . Four fed officials talking today i wanted to highlight what was happening with gold and silver. Yesterday, gold below a 200 day moving average. Goldman sachs out with a note saying under 1250 an ounce. Ratearket probability of a hike in december has moved higher. Silver seeing a big day, biggest gain in three weeks. The first rise so far this week. We now are joined by rick seader, the cio of black rock fixed income group. What is your reaction, buying or selling . Rick markets were expecting some of the recent growth data you take out the seasonality of the government workers and we are back at 175,000 jobs. If you take a three month moving average and the we are running at 200,000 jobs. Been 30 straight months running at 200,000 jobs on a oneyear average basis. I think it is solid. If they can save anything, that is a great surprise in terms of election volatility in the markets. Fed will go in december. We dont think they will go in front of the election. Jon i daresay the Federal Reserve is on autopilot. 200,000, thatf does not scream full employment to me. Had ahistorically, if you bit of a pickup in the Unemployment Rate, if you get into the fours, that is pretty close to full employment. More people are coming into the workforce, which is obviously impressive in terms of where we are today. You take qualified applicants for roles, you have to be eating into the qualified applicants given how many best 8 Million People have been hired in three years. More is going to come. I dont think we are trending down. I think we can run at threemonth averages for 150,000 alix if you break it down and look at the goods producing sector versus Services Sector and where the employment actually is, it is in services by far. Get h more jews can we how much more juice can we get . You are exactly right. Whats happening in this economy is extraordinary as the economy asset toom Hard Services all the jobs that have been created are in the Services Sector. I do believe there was this ,ncredible change in technology my sense is you are right in terms of where that can be Going Forward. I dont think it is coming off significantly. David how does this model work . You wouldve said at some point inflation is going to kick in. Rick i say there are a couple things. We think inflation is trending higher. The average Hourly Earnings could have been higher. Youre on your is 2. 6 . Pretty good. Wages come with a lack. 2. 6 year on year is good. What people dont spend enough , talking about technology, there is an incredible headwind of efficiencies been created. Keeps a cap on how far inflation goes, but running at thosed trending higher sticky numbers keep trending higher. Jon whats the story with the bond market so far this week . Treasuries and selling off all week. In that interview we did a while ago, we talked about curves staying flat that is largely finished. Now, you have a dynamic where the fed has been pretty clear you can move once this year, maybe move a couple times argument meaning you will have shortterm Interest Rates that will be produced able. The long end of the curve, the fed will let inflation run hotter. Thats why the back end has come off. Jon Francine Lacqua has a special guest in d. C. Of dust the governor of italia. Nk thank you for joining us. Do we have to talk about tapering before the end of qe . We have never talked about tapering. Officially or unofficially. We have been making very clear that we have this in place until the end of march. The issues are technical. Theres a lot of discussions on this program. Weve had Corporate Bonds and so on, but weve seen a program that is welldefined. Francine at some point, you will have to pull back. Will it be gradual like the fed . Thatio i dont think we have not discussed about tapering. The point is that we have very low Interest Rates and these low determined in are nominal terms by the central bank. There are forces behind them. We are really there. Francine if you have not talked about tapering and this goes into march, have you talked about extending it almost for sure . O if necessary, it will be extended. It depends on inflation, the way we see inflation moving. Duere going to see changes to oil prices, due to secondround effects on wages. Of pace ofhat kind inflation would you like to see before you do talk about ending qe . weve been working on the projections that we look at. Lastrojections are now the for the ecb next year, it is 1. 2 and 2018, 1. 6. This is a Movement Towards 2 . We have to make sure that momentum continues. Francine what does the market expect . The ecb forecast taking into account Market Expectations for inflation. You always take them into account when you make projections. Wage behavior depends on expectations. They are in line with the projections that the only problem is these expectations and in this projection, there are risks. There are ranges, intervals. Whether thediscuss risks are balanced. That. Is mixed evidence on i think there is downside because growth is still low but at the same time weve seen these oil prices that are not continuing to rebound. Francine do you worry about the impact of negative rates on banks . Ignazio in principle, yes. In practice, we dont have low growth,t talks and so on interest funding lesse expensive. Does leaveay weve negative rates forever. We cannot say leave negative rates forever. You have to balance the impact in the short term with the benefits of the recovery and oil demand in the longer term. Withine we are speaking the governor of bank of italy if you see negative rates impacting probability that , the ecbty of banks may be in a strange position where they increase Interest Rates while keeping tapering ignazio we have not discussed this. We know there are unintended consequences which are possible. Francine theres so many theories out there. How much do you discuss about that happening and adversely affecting europe . Discussionshave combining evidence from different markets and countries. Seeing whether there are certain areas, wage increases that somehow our going to matter for inflation. On that basis, we observed that they have not recovered yet. Francine what our markets mispricing . In europe or globally . Ignazio markets are looking at the same figures we look at. Theres a lot of uncertainty. Affectingainty is investment. If you have uncertainty on the political side, on the geopolitical, on the emerging economies and more deeply on the technological affect and demographic changes come all these are halting investment projects and these will affect growth and price. Francine the worry that we still dont have a resolution for banks in italy . We need a resolution before that referendum . Ignazio i dont see that. Talking about italian banks as itsanks in italy difficult to understand. The potential number of banks in italy are fine. There are a number of banks. The one you read about in the newspapers. Francine has the ecb discussed Deutsche Bank . Ignazio we have not discussed which bank. Deutsche bank. Francine have you discussed german banks . Ignazio theres two kinds of discussions. One is the discussion on the macro level. The other is on the macro banks and role of financing economies come in europe, it is mostly through banks and that makes institutions very important. Credit is not picking up very ongly, even if sectors almost exclusively for demand reasons. Because of the lack of investment or the lack of activity picking up. Then, there are individual banks. There are legacies from the deep these are the ones who have affected a number of banks. Francine why were they not dealt with earlier . Ignazio it depends. In some cases, they have not been wellmanaged. In the case where real estate thisssue, theres has been easy to identify. In other cases, the recession widespread has affected many banks that have been lending to small and medium enterprises. Francine and thank you so much. We will have plenty more exclusive interviews throughout the day right here at the imf meeting. Riedertill with us, rick from blackrock. You have the banks and ecb. We did see the many taper tantrum earlier in the week on the speculation that perhaps the ecb could pare back bond buying. Is that backup in yields now over . Rick no. I dont think they are tapering. I dont think that is the discussion they are having today about what the next move is. The discussion is two things. One, they are running out of bonds. What sort of flexibility can they get to continue the program and how far do you extend it . I think that is the discussion. As jonathan was alluding to before, what the bank of japan is doing, not pressing further a negative rates, letting the yield curve steep and out steepen out. The ecb will not press further on negative rates. Realization, banks cannot build net interest margin, cannot build capital and cannot that some velocity does not increase on the backside of it. Further youes, the get into negative, it does not increase velocity. It is clearly hurting the Banking System and insurance industry. The discussion today is how long do you continue the purchase atm and i you do it some point, they have to discuss in the future, they will taper the program. Talks a lot of people who , hard to believe they have not discussed when we ultimately do, which i dont think its a today discussion, but when we ultimately do, how do we do it. Theyve had to have talked about that. He says we dont have evidence that negative rates hurt the profitability of banks. Perhaps what is more important to the ecb is what they are not saying. We came into the september meeting and waited for this extension of qe and president mario draghi said we are not talking about it. Between auck rock and a hard place. , the pool ofer assets shrinks further. How did they play this communication tactic with the bond market . You have to talk about the flexibility you have to execute that. Theres a series of constraints. Oneyou buy more of sovereign in a month than you otherwise would relative to the capital if we extend contiguous to that, how are we going to do it . With japan, it is one country, one bond market. You do that with 19 bond markets . Rick its hard. It is hard for the bank of japan as well. Targeting yield levels, you have to be committed to a limited purchases. To have to be committed purchasing as much as necessary at any point in time. Moves relative to that, if you pull back because rates move to look him what is r affect on the currency david they say they have not had any discussion at all about Deutsche Bank. They have some macro prudential interests here. Is that possible . I dont know what the discussions were. My sense is they are discussing the dynamic around rates. A discussion has to have taken place. It equities are priced at book, is a 25 or 30 . You can raise more capital at a fraction of book or sell assets. Shareholders would not like you to shoot more equity and raise more capital. Discussion, i cannot believe that is not being discussed or hasnt been discussed. Jon im on the governing council and we do monetary talk about thee bank situation, i cannot believe ecb havent sat around a table and talk about whats happening with one of the biggest banks in the region. Jon you do have to make money, you look like would you be buying cocoa bonds at Deutsche Bank right now . Rick i cannot comment there are parts of it, do i think there are parts of the cocoa market that makes some sense today . I do. Some of the bank debt has gotten pretty reasonable here. Debtse ecb cannot by bank you have to be conscious. You have to resolve the italian banking situation, german banking situation, portuguese banking situation. David has the market overreacted . Ank i think they are idiosyncratic asset class. In places where the risk is say iou should dont necessarily think theyve overreacted. Jon a great breakdown. Rick rieder sticking with us. David this is bloomberg. Rick rieder is still with us. News coming out of asia, big tick down in sterling. Last night, there were a couple of hurricanes. There were two happening at once. The flash crash was pretty late last night in terms of that price action. Then, as stabilized overnight and then early this morning, trend down again. Ofre was a fair amount volume that traded down and it is reflective of the fact that theres a lot of uncertainty triggering the rule of 50 and the uncertainty around brexit. That is pretty significant to be down here. There was not a lot of liquidity late at night. Rose iflt market you have sterling exposure, are you selling gilts and the back of that move . We talk about a big developed market currency, that is concerning. You have those sort of moves overnight or even this morning is significant. The gilt market is overpriced. Where living in a world all these markets are being distorted by Monetary Policy. You will see more volatility Going Forward. Fair values are not and the longer we keep them there, the more you have volatility on the backside of it. David that is the final word for today from rick rieder. Jon equities marginally negative in the u. S. The fx move is in market. The cable rate breaking 120 late yesterday. That does it for our last edition of bloomberg. We will be joining you monday with a new set and a new look. Will set you up for your day to help you make the best business and Investment Decisions you can. In the meantime, have a wonderful weekend. More coverage on job stay up next. This is bloomberg. Day up coverage on jobs next. This is bloomberg. David it is 10 00 p. M. In hong kong. Nejra welcome to Bloomberg Markets. David from washington to london, covering stories out of germany, wall street in florida in the next hour. Byrolls in the u. S. Jumped markets, the the dollar paring earlier gains and stocks falling on the news. Crash for the pound. Analysts expect the initial byline may have been sparked an error pound dollar parity a level unseen in the uks currency history. David Hurricane Matthew moving along floridas east coast in the u. S. 500,000 florida homes and businesses have lost power