Transcripts For BLOOMBERG Bloomberg Go 20160603 : vimarsana.

Be on the program explaining why we are entering a new era of capitalism. Rosenbergck box jeff will be here through up the 9 00 hour. Another jampacked show. Jonathon a strong show ahead. Let us check in with our Bloomberg Team for indepth coverage. Eric is in washington. In hong kong on concern the chinese currency could repeat the january route. Well have more on jamie dimons comments as he weighs in on the brexit debate. First up, the may jobs report coming out in less than 90 minutes. Let us head to washington. X need the jobs number verizon. Will get to verizon in a moment but it is hard to see this jobs report eating the one that forces the feds hand on june 15. Why do i say that . They indicate a 22 chance of a weeksike in less than two from now. We would have to see a monster printed on payrolls for those expectations to change meaningfully. The median estimates of economists we surveyed showed an expectation of 160,000 jobs created in may, the same that we saw in april. The expectation would be that the Unemployment Rate would take down to 4. 9 percent. We would see year over year wage growth of two point 9 . And monthly wage growth of 0. 2 . It is get to the verizon point. 35,000 landline verizon workers were on strike in may. The rise and did a hire people temporarily to fill some of dide crucial verizon hire people to fill some of those crucial positions. Economists had a difficult time figuring out what we might see in these this jobs report. Some think as you as 120000 and others are more bullish. As of now, we are expecting to see 160,000. Jonathon the most important jobs report since the last one until the next one. We are a we always see th that. How does this all factor into the feds thinking . To worke fed has a lot with. There is strong consumer spending. A backdrop suggests the fed should have to move at some point soon. Fed isellen said the inclined to move in coming months. The nearterm future you have the brexit and also the data in laborige book showing Market Conditions are tight and there is high demand for jobs in areas like tech but not a lot of price pressure. Youhad this push me, pull economy which is driving the fed back on some fronts and pushing it on other fronts. It makes a difficult calculation for policymakers. Probability ticking down in recent days. A few days ago, it was 30 and now we are at 22 . Jonathon great to have you with us. David now, to china. The yuan is heading to its fifth concernsop fueling about a repeat of a january route. Joining us now is an economist coming live to us from hong kong. It seems like we have seen this movie before. Good morning. Tople are looking forward the sequel or some people expect a sequel like what we saw in january and august last year. China had a good run over the last few months. They managed to step lise currency and flows. Thatnalysts are worried that timeframe has come to an end and the trigger could be the Federal Reserve if there is a fed hike. Would put downward pressure on the yuan forcing the central bank to intervene and spend some reserves to put a bed of support under the yuan will let the same it is a potential battle that china has on its hands. Next week, we will get reserves data. We know the capital flow, while it has fallen, it is still trickling out of the country. We have gone through a timeframe of calm for the yuan, at the lingering threat in the background may come to the foreground in the near term. David let us talk about the underlying economy. Pmie is more emi data data out of china. We had a soft reading in the index. We know the Manufacturing Sector in china, while not getting worse, is not taking off either. Not showing much momentum. We are heading into a big week of data for china. Inflation data, trade data. By the end of next week, we will have a better update on where chinas economy is heading to at the end of the year. Megan less than three weeks away from the crucial brexit vote and some big names are speaking out about it. Let us go live to london. We have jamie dimon and the Prime Minister weighing in. What is the outlook this morning . U. K. Aftermon in the being in new york yesterday flew in to talk to his employees with the chancellor of the treasury. He has not been shy in the past about what he thinks about inxit but today, he said it front of the jp morgan employees who he says their jobs may be at risk. And will not tell the british people how they should vote on this but i do want to give you some of my opinions. It is a orton that people make decisions with their eyes open. It is my opinion that this is a terrible deal for the british economy and jobs. Dimonre you have jamie speaking to his employees. He says they may have to cut thousands of jobs in the u. K. If brexit happens and move those to the continent both for business reasons and if other countries require it. Megan why are the polls tightening so much . We thought the remain camp had this done. Now, we have seen this tighten so much. Leave is even pulling ahead. What is driving that shift . It seems like there is not a over whatimistic talk happens if the u. K. Stays. It has been more of the fear of leaving and perhaps that has driven some. What you are still seeing some of the betting markets think that remain is the more likely option. The government is stepping up efforts to push that remain vote. Megan thanks so much. Michael moore from london. Lettuce head over to jonathan for a check of the markets. Jonathon payrolls friday. Looking for 160,000 as the headline number, in line with april. This is how we trade ahead of that number. In europe, much firmer with the ftse up by. 25 percent. The debate in the fx market. Stronger dollar, and the fed moving in june or july, what does that mean for the chinese current . The Goldman Sachs moved out right negative. The yuan weaker much of today down by a couple of tenths of 1 . The concern is that you get the dollar strength, the chinese currency week this and capital flight reignites. Those things feed on themselves. That will be a conversation for later today will we get the payrolls report. Wti and brent, a little bit softer. 49. 09 holding on strongly to the 50 handle. Let us go over to abigail for a few stocks to keep an eye on. The top stock we are watching is valeant. They have received another notice of default for filing finance show late this year. Year,the turmoil this including the change in ceo. The companyn call in default if they do file financials late. We do have that happening and the shares are down modestly in the premarket. In europe, the shares of bp are trading higher on news that the company has agreed to pay 175 million to settle claims file i investors regarding the company lying about the degree of the global mexican spill. That is a fraction of what was initially saw to i investors but it does remove the last major overhang over that disaster. Those are some of the stocks we are watching in the premarket. Jonathon counting you down to payrolls. The fed inches potentially closer to a rate hike this summer. What that could mean and whether it could prevent janet yellen from making him move. We are joint by adam parker and find out why he is among the bears. Do not go anywhere. More go is next. Jonathon loses bloomberg go. The jobs report out in a little over an hour from now. One of the big factors is whether the fed will raise Interest Rates later this summer. About his rate outlook for the year. Charles my outlook is coming around nicely. I expect it will be an appropriate it will be appropriate to raise funds twice this year. Jonathon will one of those two calm during will when of those two calm in june . Does it matter in june or july . It does because you have the brexit vote on the 23rd. Let us suppose something goes wrong there and we have this surprise event. Then, the fed will not go in july. Charles evans was the second membervish number and and he thinks it is appropriate to raise rates twice this year. If you raise june and september or june and december. But, if you do not go in june, you probably will not go in july. Jonathon is charles evan no longer dovish . The fed has moved with its socalled sep projections. Feeling ve some across the entire committee pretty much, that they need to start moving. I think people thinking about the jobs number in the wrong way. They think the jobs number needs to push the fed to go. I think it needs to stop the fed from going. And the futures market has it wrong. Megan you mentioned brexit, at the outset. Is it appropriate for the fed to be taking this into account so much . It is a factor. But is it something they should put such emphasis on . Shock to the a Financial Markets, nothing changes for two years. The trade arrangements with the eu remain unchanged for two years. Megan David Cameron was warning last night that it would take a decade to renegotiate these deals. There certainly would be unease. Beenthink that there has when the fed in december of last year, or actually earlier, they raised rates in december. In september, they talked about Financial Markets. They got themselves into a catch22 situation. The u. S. Fundamentals, near full employment, underlying inflation ticking up and with oil at 50 a barrel, everything says the fed should be raising rates. I think the fed has come back to look at the domestic economy. I dont think they will take brexit into account. Janet yellen could change the entire Market Perception and she gives her speech on monday at 12 30 p. M. Cumulative improvement. Hanging on the latest observation of a number that has been that will be revised twice in the next few months. David what should they be focused on . What is the most important thing when you are in evaluating the strength of the u. S. Economy today . To ask yourself what is the appropriate level of Interest Rates overtime. And ask this expansion started in 2000 nine. We are now in 2016. A7year economic expansion. Sevenyear economic expansion. It is not about tightening. They want to go cautiously and gradually and not moving risks that. Not moving or falling behind risks the fed having to move more rapidly and not gradually. I think the market is reading this wrong. Unless you get a really weak number today. Jonathon the main event. Break inayrolls number a little more than an hour from now. Is the market ready for a hike in june . Adam parkereys joins us next to answer that question and he talks about the risks to stocks right now. More bloomberg go is coming. David this is bloomberg go. The s p 500 closed at a sevenmonth high yesterday but Morgan Stanleys chief equity strategist adam parker does not think this market optimism will last. He has one of the more harris calls bearish calls on the street. Why are you on the bearish side of the projections for the s p 500 . Bullish calla very years. S p 500 for many we decided to move more balanced. Our outlook is that earnings will grow 4 per year this year and next year which is above consensus view. If a year from now, you pay 16 times the earnings two years from now, that gets you 2050 on the s p. Wen we got around 2050, thought that was a reasonable set of assumptions. We probably should get more cautious. We are not telling people it is an imminent collapse. But the market has had a big move and much more than the earnings trajectory has moved. David when you look at how for your call, is it more the earnings . The issue is on the multiples. Expand because the alternatives out there do not look that great. You always think a basket of high quality equities look better then a french upon to. A french bond. That relativeto assessment. If the multiple continues to expand it will be because investors are not fully invested and they want to chase a rally. Jonathon some of the sentiment and positioning. The Short Interest popping eightmonth high. My question is that that against industrials against momentum is that a view on the u. S. Or the rest of the world . Adam the biggest risks to earnings are the chinese economy slowing down in the second half of the year. That has fueled some of the industrials lower quality rally and the dollar gets back on a big strengthening path. If those happen, my estimates of 4 growth proved to be too optimistic and earnings become lower. Then it is easier to see how the multiple will expand. Earning expectations are coming up a little bit for the first time in a year and a half. Yearoveryear, you do not have as big a head when as the dollar euro. I find myself above consensus on the earnings outlook. It is hard to know what the right multiple is that the market should trade at. Risks that are out there and given how far we have moved since february 11. The earnings underneath have not moved as much. Megan we spend a lot of time about risks to the downside whether it is china or brexit. What you see as possible risks to the upside including a possible productivity jump, a surge in the labor market, a weaker dollar . Itthe chinese economy 5 6 and that would be the biggest contributor to Global Economic growth. Europes economy has been growing ok over the last couple of quarters. Japan could have some economic improvement. Emerging markets do a bit better. That would be the bull case and you could drive earnings expectations. What matters more than the base case is the base case has not moved much. The probability of the bear case. Probable ore seems 30 40 . We are saying now that the bear outlook has changed, not so much the base case. David the strengthening trend of the dollar. How much headroom does the fed have to raise without driving that track up on the dollar . Adam one thing i think is funny is if they race rates once this rates oncethey raise this year they are dovish and if they do twice, they are hawkish. I dont think 50 or 75 basis points matter for Economic Growth. It is not as easy as supply and demand. On u. S. Created 4 trillion the computer. At the end of the five year time frame, our 10 year yield is still higher than every other any other country. Way that it would destroy an Economic Outlook. David adam parker is staying with us. Megan could chinas weakening Economic Outlook and floundering currency lead to less risktaking in the u. S. We discussed the Global Economy and the impact. More bloomberg go is next. Jonathon this is bloomberg. Happy payrolls friday. This is how we trade. Europe, we are firm. Ftse is up. Bound fxt a range market. Look at the g 10 space. Bloomberg dollar index going nowhere. Flat on the session. You see it reflected in cable as well with the pound weaker marginally. That is how we are set up in the fx market ahead of the labor Market Report. In the commodity market, it was not about opec but about data and supplies and how crude got a little higher in yesterdays session. We come back a little bit softer. Group with a 50 handle through much of this morning. Also unchanged. A range bound market. David we are all waiting for it. We are less than two hours from the opening bell. The countdown to payrolls. Consensus among economists calls for an increase in may of nonfamily nonfarm payrolls. Theyll yet has received a notice of default from the trustee for two of its senior indentures. Because of the delay in recording its financial results. Jamie dimon warned that he may have to cut jobs in the u. K. If the country decides to exit the eu in the referendum later this month. For news beyond the business world, we turn to business world. Donald trump and Hillary Clinton taking off their gloves in the race for the white house. Yesterday, donald trump said the likely democratic nominee should of ant to jail for her use private email server as secretary of state. Earlier, Hillary Clinton delivered a blistering commentary on donald trump and his foreign policy. The Human Rights Group says the eus deal with turkey to curb in regular migration is illegal and reckless. There are 3 million turkish refugees who ares your he and people are without power in paris. Vre museum is closing its doors due to high water. More downpours are forecast threat the weekend. Global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. You can find more stories on the bloomberg at top. Jonathon tom keene joins us. We are going to be talking about the Federal Reserve bank of england bread. It used to be tight and now it is wide. 16 year wide. U. K. Guild yield trading way below u. S. Twoyear notes. Let us to let us start when it was tight. It never happened. Out toread has blown some extent, 50 basis points wider. Because of the referendum. I would also suggest it shows the internationalization of june 15. Anna edwards spoke with Charles Evans earlier this morning. No one is talking about international up but for brexit. Did you notice german yield this morning grinding down . Jonathon and twoyear yields on gilts have also been grinding down. Side, say, on the other 2year note yields have been increasing in the us because of the expectation of the feds move. At this point, if the Federal Reserve more comfortable with the politics in the u. S. Then the bank of england is looking uncomfortable with politics in the u. K. . Would suggest the dimonosborne meeting was studying. Stunning. At was i cannot fathom that meeting. A bankn i could imagine chief standing up and telling his employees what he thought about the world and the risks. I get that. But to stand next to the chancellor makes quite a bold statement indeed. You can see he is very clearly concerned about what may or may not happen. Realize theot polarity of the United Kingdom over brexit. Elitesear from our fancy talking. But the polarity that we have in our bloomberg reporting this week was incredible. Jonathon the cross party hilarity. You have the Labor Party Led by Jeremy Corbyn who is also campaigning to remain within the eu on a different platform. Within the labour party, that do not like the way that greece was treated and they would also want out. The left and the right have an interest in the outcome of this very the lines have become blurred but they are nuanced. Two year to year yield spread, it shows the dynamics of the global bond market adjusting to the Central Banks of the world. Jonathon the only yields moving higher art the two year. Two year. Are the a conversation with bill gross coming in in just under an hour. The u. S. Om brexit to president ial race. Political uncertainty is a big factor for markets over the fed posturing about a rate hike coming, how much are they really worried about political change in the u. S. . Back with us, adam parker. And john riding. Adam, i have to ask you, we talk about brexit that we do not talk about the Political Risk of the u. S. Election. You have one candidate who a lot of policy positions, particularly on the markets, doddfrank, foreign policy, are not very well laid out. Adam i have not been asked about that that much in the u. S. Outside of the u. S. , people are curious. Most people in the u. S. Realize that the undetermined voters get determined after labor day. Not getting a lot of questions about that in my usbased meetings. Jonathon coming over to the u. S. , way more questions about brexit and i would get in the city of london. Is it a familiarity story . Adam it could be. A lot of people i meet with manage Equity Portfolios and think about Earnings Growth of corporate. They realize that through the years, it is hard to make a prediction. When you think about where we were in 2012. If mitt romney wins it is great for the market and if obama wins it is terrible. And then 2013 was the single best year, it went up every day. We all had a fresh reminder about how hard it is to make predictions about what will happen and it is premature to speculate on what is going to happen. David are we not seeing much reaction in equity markets as it is so far off . Or is it because it doesnt matter to equity markets and they are concerned about other factors . You could know the outcome for the president ial election and still not know if it is good or bad for the market. The number one problem that the economyed for by washington, d. C. Is lowering the Corporate Tax rate. We have been at 35 for a long time. They look and say there are also elections for congress and this and it and is this political stalemate going to change . I somehow doubt that. Megan let me throw in a big factor which is called ryan yesterday coming out which is paul ryan yesterday coming out with a big endorsement for donald trump. Of thelowing for some huge off shoring of cash sitting outside which many people blame for a lack of productivity and job growth among u. S. Companies coming back on shore. This is a top headline in washington but with paul ryan coming out you do see a chance for that happening but if donald trump gets elected. At a u. S. Tax system that is very high but it also incentivizes you to make your money and keep your money overseas. The fact that washington cannot fix this shows how dysfunctional politics are. Maybe it will be dysfunctional after the november elections and nothing will change. I worry more though about how we in ante Profit Growth environment where Profit Margins have peaked. It seems to me very difficult that we can struggle and the profit return would drive the equity market higher. Morning, the j. P. Morgan chief spoke to his u. K. Employees and said if you vote for brexit, jobs could be lost in this country. That is what he told his u. K. Employees this one. Can you imagine a bank chief on wall street are addressing his employees publicly and telling them that jobs could be lost if either Hillary Clinton or donald trump were elected the president of the country. You think that would ever happen . Know. I dont you guys are more into politics. I am more into corporate earnings and stock prices. So i will punt that over to you. That may reflect more what americans think of bank chiefs. Dimon to goamie there and make that stand. Lost onhat jobs will be this is a pretty big move. I cannot see a corporate ceo taking the same position. Are concerned about corporate earnings because that is what drives equity markets. Adam ultimately, it does. David what can make a difference . Can a Public Policy position change that . Adam they could pull forward or push out earnings. I dont know how likely that would be under any regime. Ultimately, i think you can have some Profit Growth, low Profit Growth. We are using 4 per year for the next two years. S p 500 grew earnings of the s p 500 grew 6 . It seems likely the Energy Sector will earn more in 2016 than it did in 2015. It seems likely the currency headwinds will be last. I think 4 could even be too low. You asked me before about people bullfor equities the case for equities. You could get a big chase in the equity Market Making the multiple expand on top of the growth. That is a plausible scenario. 10 and 11th it seemed more unrealistic to position for that. You have also heard of china as a possible risk factor. What do the markets have baked in right now . Steady as it goes . I saw a bunch of corporations. The tone is essentially that while things have slowed a little bit on the economic front, that they slowed to a level much higher than where we were several months ago. I think that is complacent if it gets worse but the consensus is that the stimulus worked. It will probably cause some slow down in the second half of the year but not the hard landing. Jonathon are you disagreeing with Goldman Sachs also . Goldman changed their fed call for june after the last unemployment reports. The number one problem facing corporations in generating profits is low productivity. We are at full employment. Wage growth is low but picking up slightly. 67 yearsd the worst of productivity growth that we have seen in the postwar environment in the u. S. If you cannot get that, you cannot keep the cost down and if you cannot do that, that is bad for Profit Margins. Prophecy policies to raise productivity are needed. Adam we have a lot of economists at Morgan Stanley and our chief economist in the u. S. We talk about productivity a lot. I personally think that it is as simple as mix. The Technology Sector and the healthcare sector have superior Profit Margins than average. You do have a mix of fact. Effect. History and you ,ant to see margins revert back i think that is ridiculous. You are comparing apples to oranges when you do that. You are comparing in 1980, the biggest 10 companies had net margins in the high Single Digits and now it is in the midteams. You are comparing technology and health care to manufacturing etc. It is a mix affect that makes the set of u. S. Companies likely to maintain higher margins than they did in the past. I am not saying they have not softened some in the past few quarters that i think they will stay at higher levels than they have in history. Megan thanks to adam parker and john writing. Jonathon coming up on bloomberg go, it is National Doughnut day apparently. I am not familiar with this. We will be speaking to ceo nigel travis. Put a donut down in front of me and i will try to resist. That is next on bloomberg go. David this is bloomberg go. 8 00 hour, wehe jack for thed by entire hour i am happy to say. Megan this is bloomberg go. I am megan murphy. It is National Doughnut day. We are joined by now it nigel travis, can brands group ceo Dunkin Brands group ceo. You have been outspoken about wage costs and the impact this company with your kind of employees. When youre looking at the market in terms of wages, what is competitive and what is not . Nigel on job they come everyone has the forecast out there. When hundred 70 or 160 or whatever the number is. I think the demand is understated. Our franchisees are complaining about how difficult it is to find people. Job growth is actually very strong. I am concerned about something else. Youth unemployment. If you look up the number for. Pril, 10. 8 it is our industry creating the jobs. We grow so many stores in the u. S. 9000 jobs to the economy we added. Some people would say they are lower wage jobs at but they are the entry into an into employment. They give people discipline and the opportunity to learn how to use customer interface and the computers. It is our industry that creates opportunities. Wage pressure is always tougher franchisees. One of the things we continue to do, is focus on what is important, growth on the top line. National doughnut day. Everyone gets a free plastic doughnut. Lineve to drive the top and we are also announcing this morning that our on the go at, on the go ordering will be starting. Megan the bottom line. Is 15 an hour unfair . Nigel clearly, anything that happens suddenly is going to hurt our franchisees. We have been focused on profitability. Goodfranchisees want to is discussions about minimum wage. We never said anything against having good discussions on a basis. Y state what works where i live in massachusetts does not work in alabama. At it on aet us look statebystate basis. Let us also plan ahead. It is the kneejerk increases and the uncertainty that goes with that which causes our franchisees problems. They want to plan. We also want to plant to make our stores more efficient. Your previous guest was talking about productivity. Going back to our on the go ordering, it improves productivity at the store level. It makes it easier for our guest and it is the opportunity to give them convenience. They can skip the line in the store. They can have their drivethrough ordering be a more smooth process. If you look at our store labor, 30 of it is taking the order. If we can make that more efficient, increasing nroductivity, that is a winwi for our franchisees. Megan we have seen mcdonalds, growththeir number one in earnings is the battle for breakfast. Nigel we feel very good about our breakfast business. And grocerystores stores, everyone is going after our breakfast is this. I feel as confident as i have ever felt. We have a fivepart strategy we launched last year with a focus on digital, value, and coffee. We are all behind this together. In a franchise system, it is the most important relationship. We could not be more aligned. I think in the next six months, you will see a really good six months for them condone its specifically Dunkin Donuts specifically. Jonathon the nonfarm payrolls. What will they be . We will show you that next with the report about 37 minutes away. Megan this is bloomberg go. It is time now for off the charts with all of the Economic Data surrounding the jobs released at 8 30 a. M. Eastern time. Abigail joins us. Take me through the most important jobs report since the last one. Blue,the first chart in the twitter whisper number for this month or for mays job number. In white, the nonfarm payroll number which came in last month at 160. The twitter number is expecting a slightly better number than what the survey is calling for and what we had in april. Ieran the data is lump than the twitter number. In white, the Labor Participation number at his store lows but we do see wage growth, Hourly Earnings have increased. Number atpation do see wages but we growth, Hourly Earnings have increased. Higher, whates get happens to people participating in that workforce . They are coming in off of the low. The last chart, if we look at that, this is a great chart. In orange, nonfarm payrolls and in white to we have wages. When it wages go up, payroll goes down. The divergence suggests that the latest increase, payroll may come down. David coming up, we had to washington, d. C. To get that report. Plus, we speak to bill gross. 30 minutes and counting. One of the biggest jobs report in recent memory on deck. The the end of an era. Why the golden age of investing might be over and why Central Bank Policies are to blame for distorting the markets. And the longest losing streak of the year. Could the weakness cause another broad selloff . Welcome to the second hour of Bloomberg Development with megan murphy, we are just about 30 minutes away from the may jobs report. David, you know it has some importance because it is the last payrolls report before he june fed meeting. This is important one. And bill gross, the man in control of the 1. 3 billion anus capital fund manager. Now lets go around the world and check in with our Bloomberg Team with our indepth coverage of the jobs report. Matt miller in berlin and shannon is in arkansas for walmarts annual meeting. So lets start with the jobs report. Less than 30 minutes away from that jobs report. Lets bring in carl. What are the economists expecting . And what are you expecting . Do you agree with them . Carl as far as nonfarm payroll gains, we are below that number. Hats going to be critical here, more important than number the verizon strike thats been welladvertised running up to the report, roughly 36,000 workers at verizon were on strike so as soon as we see that Headline Payroll change we go into the private Services Telecom workers and look for a number 36,000 s like a minus number and get the ex strike number thavend will tell us whats happening in terms of actual labor market momentum. So there will be more noise . Carl yes, more noise than usual. Will taking out those verizon workers skew those numbers at all . Carl when there have been large lane labor disputes at verizon and elsewhere, we tend of the work ngth probably not hourly averaged earnings its not clear. Some strikes have shown an impact there and some strikes havent. So there is a sense of heightened noise and uncertainty around the report. We should be able to 23il8 ter out the strikes on payroll but less so on Labor Force Participation and nonetheless, this is just a little bit more cloudiness in the outlook for monetary policymakers which gives them all the more reasons to sit back in june and raise rates in july. Chief u. S. Economist for Bloomberg Intelligence. And bill gross from Janus Capital will join us to help make sense of this jobs report. When you look at companies and their ability to raise finance, no big hurdle. Lets go live to berlin and get latest from bloombergs matt miller. Matt yes. Well apparently bayer started to shop loans and has gotten five banks to pledge around 12. 5 billion a piece as bridge loans for its takeover of monsanto. That would make it possible for bayer to raise its offer from 122 a share to 155 a share for monsanto. That would bring the valuation of the deal up above what china is now paying for general tae said it monsanto had was but the bottom line is the banks are ready to pony up money so the buyer can so bayer can make this bid. All of these shortterm loans according to people familiar with the matter, didnt they just say those concerns these kinds of companies have no problem accessing finance . Matt right. Well, there arent that many of these kinds of companies. Keep in mind this it would be biggest deal in german history and they would form the biggest farm and seed maker in the entire world. But yes, if you have good credit, banks out there have the money and are willing to make loans to those with good credit. Thats probably what they should be doing. The question is, is this the right valuation . Were talking what could be 17. 5 times. Thats a pretty hefty penny. Matt miller from berlin. Thank you very much. And over to walmart which is holding its Shareholder Meeting today. Joining us live in fayetteville is shannon. Lets talk about wall maturity saying they are going to use uber and lift to make deliveries . Yes. Some big grocery news for them and a way to forlt five this wall around groceries. Its like amazon and google all trying to get into the grocery business and try to make to it will uber or lift drivers pick up your grocery list and deliver them. We will talk a lot more about that. How much of this is not just. Bout walmart but amazon i think almost everything walmart does at this point has something to do with amazon and every other retailer like target trying to push things online. They were a step behind amazon when amazon came in but they are not going to let that happen to their grocery business. Half of their business comes from groceries. Thats why its so important to them. Now lets go to john for a look at the markets. John . Julie yes. About 23 minutes from the payroll report. In london further ftse we are higher. The global fx market, the g 10 space, no drama here either. A twomonth high. The british pound, unchanged. The fx market doing nothing ahead of that. You see on the bottom of the screen, 30 years buns down by 2 1 2 and the 10year back below 10 basis points, so a bid for buns in the bond market. Ti down by. 0 of . But everything counts, ive got to say. Calm waters ahead of the payroll report. Lets head over to about agail doolittle for a few stocks to watch. Yes. The delay is due to all the issues the company has been struck with over the past year or so. The stock is mainly unchanged. This is not the first default notice. The stock, however, is down 87 over the last 12 months. Now, trading higher in the premarket is gas after the company did beatest mats. Down just 3 versus the decline of 6. 5 . Oday did say the improvement went into the memorial day weekend. Pressured perhaps by a high bearish Short Interest of 14 . Those are some of the top stocks were watching this morning megan. Thanks about agail. Heres emma chanda with this mornings news. British Prime Minister cameron denying. We have to negotiate our exit and trading arrangements with the European Union and 53 others. My view this would take a decade. Do we want a decade of uncertainty . Do our businesses want a decade of uncertainty . Turkeys Prime Minister says they plan to take further measures to label the genocide a century ago but another says no one should expect that to deteriorate entirely. And it was a quiet night for the splash brothers but their teammates made plenty of noise without them. Shaun livingston scored 20 points off the bench as they beat the cavaliers. Steph curry and Klay Thompson combined for just 20 points but the warriors reserved as the cavs bench. Game two on sunday. Powered by our 2200 journalists in our news Media Outlets around the world. And diving boot payroll number. Will the strike from the verizon workers make it hard Center Someone needs to tell me how the make this ex verizon. E are here for the rest of the news. More go is next. This is bloomberg go im david westen. In less than 20 minutes from now a brandnew reading on the u. S. Economy. The Unemployment Rate seemed to be ticking down slightly. Joining me now from new york is jack. Lets start with you. Obviously, the first thing you will see is the top line number. Whats the second thing you look for . Wages. This is a crazy number. In this month we are actually hiring close to 900,000 people and its easily adjusted to 160 or 1 70. Six to one. And thats a net number youre giving us . Yes. A net number of hirings. And the adjustment is that much . Yes. So 36,000 out for verizon is really ,000 but people are going to make lots of noise about this. Frankly i could care less about the number and more interested in the wage number because thats going to have an impact on profits and lit tell us something about whats going on with that. I wouldnt look at the wage number but the unemployment number. I think what we have seen in the wage number. The more retirees we have, the lower that is going to go because youre replacing higherpaid workers with lowerpaid workers. Just look at the unemployment number. If that is dropping that means wages are going to start picking up. When you look at wages, and we also look at the labor force pay rate which has also been an issue, what do you need to see from those wages . That real Unemployment Rate that pops up . If you look at the the number people that are changing jobs and unfilled jobs. To fill those jobs we have to raise wages. We sort of dealt with the issue of getting what i call the oil workers out of the number because they were being paid significantly higher. What i would expect to see is. 2 or. 3 of an increase on what i call the average weekly wage thats taking place. If you add 160 or 1270,000 people to the workforce its easily adjusted, youre going to have total available funds to spend in the economy. Drew maddox, putting all this together, we are about to e sub200,000 again and again something around 150, thats going to be considered healthy, because as you reach employment but lets say that happens and we dont get the wage to go along with it, what does the fed do . I think the fed goes back to what is the Unemployment Rate doing . It will be driving Unemployment Rate lower and lower and eventually what that is going to spark is pressure for people to bid away workers. What you really need to see with wages to go up is if your neighbor quits their job and your neighbors neighbor quits their job, pretty soon your firm is going to say we either want this guy or he is going to quit and that will drive wages higher. So what you need to see is more people quitting their jobs and that will make wages higher. Havent we already seen a big increase in the quit rate . You think thats going to go higher . Yes. Nd we perversely need to see jobs do more firing. They need to see low performers because firms would rather keep the person they have on that might be underperforming than churning them out and actually replacing them, trading them up. Its good for everybody. Sounds hard but the person who gets churned out, they may go to a place that is better for them and the firm might be more productive. Jobs that available job openings has been flying quite aggressively since the financial crisis of tweeverpb 2009. I believe its the white line on that shot what else do you look at in 12 minutes time to really gauge whats happening in this labor market . Well claims are my number one thing. If no ones being fired then nothing is quote, unquote, bad is happening in the economy. If a firm were in real trouble, they would be firing people and were not seeing anyone fire so we need to break out of that and see more churning in the labor market. Drew, we also hear from economists that the average hours worked is a critical number. Is that important to you . It is, and my colleague sam has done a lot of work on this, hen you look at it on an industrybystri basis, it tells us if you want to boost output you cant add hours because youre really at a peak in a sectorbysector basis. I can see that in manufacturing where if youre extending, you know, trying to extend your output, you would send more overtime. Im not sure that happens as much in the services. Thats a great point and that tells you something about the overall data quality. We need to look for compelling evidence that supports it and things that disprove our thesis. The issue with hours worked they say on the basis of 35 hours a week, i wish that were the case. Thanks very much. Jack ripken, c. E. O. And chief investment strategist. I want to steady our workweek, 35. Id love that. That is not us. Ming up on go, the pound experiencing some serious volatility and does a rate hike mean the ends of a golden age of investing . All that and much more next on go. This is bloomberg go. Im jonathon ferrell. We were seven minutes away from the payroll report. We are three weeks away from a vote. So how closely is janet yellen and the like watching what happens in the u. K. . Theres just a lot of uncertainty. Theres uncertainty about the results, obviously, but i think theres uncertainty as to what would happen in a lead vote and in a lead vote in markets. So under those circumstances, its a factory i would consider. A factory he would consider. In fact we follow up and ask is it about growth or stability . And he says its about the markets. Do you agree with that . Well, i dont think its about the markets, but if i were on the fed i would wait and see on that because theres so much uncertainty about the votes these days. Can make all the pundit prognostications but the reality is this is an anticameron vote and not whether brexit is a factory or not. The chance legislator said he would have to move bonds out of the u. K. If they vote if the u. K. , which is not that big of a market is removing itself from whats going on in the rest of europe, then i think you have to shift. You have to make a geographic shift as to where youre putting your workers. The u. K. Is a big financial center, but its not a big contributor to the global g. D. P. The rest of europe is. And when you talk about this being a global phenomenon, do you see strands of that in the u. S. Of the same kind of pop will you explain . Well, of course we do. This is right out of leonard kohn. This is democracy coming to the ssa, raw democracy, thats why its so difficult to predict because its been easy previously to say the establishment says we need to preserve what we have got but these folks are not voting for the establishment. They are not doing it in the u. K. Or the u. S. Or in turkey or in lots of places. Actually their prejudices. What are the chances the Federal Reserve is going to Pay Attention to whether or not they hike Interest Rates. I think it does, maybe that is where we get back to markets. Because i think the fed is very sensitive to whats going on there and the fed is also very sensitive to whats happening its a political entity and it has to Pay Attention to whats going on. He will be sticking with us. Coming up, we are four minutes away from the may jobs report. Will the numbers be Strong Enough . Whether he head for the report we are all waiting for. Thats next and its on go. Hiim here to tell homeowners that are sixtytwo and older about a great way to live a better retirement. Its called a reverse mortgage. Call right now to receive your free dvd and booklet with no obligation. It answers questions like. How a reverse mortgage works, how much you qualify for, the ways to receive your money. And more. Plus, when you call now, youll get this magnifier with led light absolutely free when you call the experts at one reverse mortgage today, youll learn the benefits of a governmentinsured reverse mortgage. It will eliminate your monthly mortgage payments and give you taxfree cash from the equity in your home and heres the best part. You still own your home. Take control of your retirement today jonathan 30 seconds away from the jobs report. Here is the state of play in the markets. The ftse up by one percentage point. The dax at. 5 . The jobs report now. David 38,000 jobs, that is the number created in the month of may. The lowest job growth in this country since september 2010. Not all of what we saw in the month of may was due to the verizon strike. Yes, information and telecom employment was down. The manufacturing was down by 10,000. By 10000 andwn construction was down by 15,000. But there is more bad news. Marchpayrolls payrolls were revised. So we had 38,000 jobs created in the month of may, but 59,000 jobs subtracted from the previous two months. But there is more. 458,000 people left the workforce last month and so that have the effect on the one hand, pushing the Unemployment Rate sinceo 4. 7 , the lowest november 2007. But it also reversed the recent gains in Labor Force Participation, which is now back to december levels at 62. 2 . Wage growth came in on target, up 2. 5 yearoveryear and 0. 2 for the month of may. Created in were education. And longterm unemployment continued to drop. Let me just recap. Payrolls growth of just 38,000, the least since september 2010. The Unemployment Rate stands at 4. 7 . It is a huge miss on the headline number. Look at the Market Reaction from the end of the curve. Annette that rally. We are lower by seven basis points on the twoyear note yield. Lower yields on the front and. Eans a weaker dollar twoyear yields, 82 basis points. But lets look at the dollar reaction on the fx market. The dollar index moves much lower. Weaker dollar story. Lets bring up the futures board very quickly and tell you the state of play in the equities market. By 42. Up s p 500 futures negative six. Asdaq futures down so it is a significant miss. Revised loweronth as well. Ugly, ugly. Y, but unemployment in line come in fact, below expectations of 4. 7 . And wage growth in line at 2. 5 . One man with a view on the bond market and the labor market data, bill gross, of Janus Capital. Tom bill, this is such a stunning report. We are going to keep dr. Glassman with us for a few minutes. Bill, this is something you have spoken about in your nose for years. Within all of the consensus, there can always be a shock. Is this report enough of a shock to alter fed action . Is enough of at shock to delay june and into july for sure. The fed is trying to convince us that one or two hikes this year is in the cards. Behink they want them to normalized and the yield curve to be normalized. But this cancels out june in combination with brights it with brexit. Mike the fed cares much less about the nonfarm number monthtomonth than they do about the Unemployment Rate Unemployment Rate. Bill it is, they do. At 4. 7 , the Percentage Rate is down a few ticks and that is perhaps part of it. It is a confusing report. I would agree with you and jim glassman that basically it is a normal report without the number in terms of payroll. So we will have to see Going Forward. Tom this is remarkable. Dr. Glassman, i want you to give us a perspective to help. , may iyear yield suggest the market and the vigilantes are a bit away from the dots . It is not clear. People have a more pessimistic view of the outlook or the equity market doesnt seem to share that. Or is it that people think that the fed is just want to be a lot more cautious . And it is a Global Economy. We are much more interconnected. Rate plus zero elsewhere. We are feeling all of that. Mike i wanted to throw in here that i looked up the numbers. Off theeople telecommunications category. That is essentially the net [indiscernible] tom one more question with you, jim glassman. The fact that we have a negative statistic and we add in 37,000 noise from verizon. This is within the dispersion monthtomonth. Help bill gross here. This is an outline report good of jim the bls will tell you that the standard error is 2000. We dont want to hear that. There is a lot of noise. This is not the only reporter look to for guidance on what is going on in the job market. Jobless claims are at very low levels. The adp survey is in the for in the ballpark, steady. We have a separate independent report on the labor market. I would say the headline is probably the aberration. Tom jim, thank you for staying longer than usual. L gross, you just heard one of our great market economists go through the minutia. Do you trust minutia anymore . To trust manyrd numbers. Lets put it that way. Talked about it is in the favor of the fed to bias the dots to the highest side. It is as flat as it has been for the last two or three years. Net interest margins on banks and producing a flat curve that is really destructive for the capital growth. So there is a bias on the side of the fed to make the market believes somehow we will see 2, 3, 4, Going Forward in the next several years and that is the reason why we see that. Tom bill, we could keep you offer for five hours on this shocking report. I want you, bill gross, twofold in the larger map review. The yens abenomics 107. 91. I know you went long on german 10 year on monday, bill. Onre is something going here, bill, on an international basis that chair yellen will have to digest. Is it the followon on Global Deflation and disinflation . Bill lets be fair. Its both. Central banks applying quantitative easing in euro land and in japan are responding to the potential for deflation. There is relatively no inflation in euro land and no inflation in japan. So that is the response. But to be fair, the reason Interest Rates are this low is not only the policy rates being set by Central Banks, but 80 billion a month that the ecb is buying and now they are buying corporate bonds. That is a lot of firepower. To see the 10year german bund bundes at seven. D is inis relatively disruptive the long term for capital. Tom Michael Mckee and tom keene off a stunning jobs report. We are thrilled to bring you bill gross of jennas capital here until the 9 00 hour. Mike we were talking about what you make of this number. Does it really matter . Janet yellen speaks on monday. What do you think she says given the fed posture towards Interest Rates in the fact that there are questions about the fed what the feds credit ability . Bill i think she continues to say it. And she has changed a little bit. She was hawkish, then relatively hawkish, now dovish and inclined to move higher over the next six to 12 months. She is being influenced by many of the fed governors, to try to renormalize Interest Rates. There is a contingent that believes, and i believed this for two or three years, then negative Interest Rates and low Interest Rates are destructive for Business Models and ultimately for longterm growth here in my dont think the fed really has that in their model making. But ultimately, janet yellen will continue to suggest one or two hikes over the balance of for and perhaps the same 2017. Unless we get back to one or 1. 5 or 2 normal shortterm Interest Rates. Then the many Business Models and German Companies and banks and pension funds, household savers are basically in deep, deep do do. Mike thats a technical term. [laughter] what is your dot plot. With the fed Going Forward, you suggest maybe july. How quickly do they move going into 2017 . Bill i think they wait until december and do it gradually. I think that is an appropriate type of approach. Little a highly leveraged domestic economy and World Economy to the extent that the u. S. Is the leader in terms of Interest Rates. The global central bank, to the extent that they move too fast and the potential for another lehman in 2017 are 2018. I think it is gradual. There is one more hike after that. Tom stan emailed into our Bloomberg Radio studios and said the reason why the jobs report is so bad is because everyone is leaving the country. Mike i dont even want to go there. That would be too easy. Tom futures are flat now. They are now 7. Yields, yields, yields, bill gross, making money today. Bill gross, minting money, the twoyear,. 79 . A little bit of curve steeping, 1. 07 90. Stunning you talked about penthouse managers. How big is the bubble right now . Bill i think its big. And youll notice with negative Interest Rates and 40 or 50 of the developed market world, there is no doubt that there is a bubble with 25 basis points on the fiveyear. A market bubble is almost undeniable. To my way of thinking, the markets have a long time to adjust to these Interest Rates as they have moved lower. Equity prices in terms of equity ratios, its all got to be connected to some extent and it is much more difficult when you get to equity risks. But there is no doubt that there are bubbles and Financial Markets, distorting the real economy. And at some point, a renormalization is going to begin to affect them all in terms of total return. Tom what will janet yellen focus on . Does she focus on the orthodox of economics . Does she focus on some new economics . Does she focus on your Financial System as she dressed to get not only to june and july, but friendly to get into the third and fourth order this year . Which she focus on . Bill what should she focus on . Bill i think in a yellens conventional, which is unfortunate because we are in a new financial error that requires a different adjustment. Era thatial requires a different adjustment. I think yellen come although she is in charge, and she has made it very clear through her press conferences come i think yellen is conventional and probably will continue to believe that lower Interest Rates stimulate asset prices and that the trickle down from asset prices stimulates real growth. That has been a failure to the we destined my way of thinking in the last five years. But she will stick to that we will have to see in terms of policy Going Forward. But i think something new and Something Different is required. Mike is this a dangerous time in the markets and a dangerous a difficult time for the fed to interpret what the markets are saying . If they are distorted by the fed, they have to react to this number,. Brexit debatey coming up. Should they turn off a bloomberg machines and make a decision without looking at everything . Bill to the extent that there viewsnumber of additional is informative, but nonetheless confusing to some extent. I dont know how you shut it down once you turn it off. But to some extent come i think but to some extent, i think they should have a standard message. Labours bureau of distance or porcelain 38,000 jobs created during the month of maiy. Average weekly hours unchanged. The numbers are not bad. Tom the immediate duration came into a constructive place as well. I would suggest what is is last time, we had a number of an abrupt market moving and retracing. What do you do in the bond market, with prices up and yields down like this, does bill gross get off the television and cash . And does he go to bell i think you begin to reduce duration. That was one of the winds of my Investment Outlook when i talked about the penthouse and the occupants changing over time. Period had a fouryour of higher prices and lower yields, higher stock rises, 10 on stocks and 7 on bonds. Lowerse levels and with levels today come at some point, and investor has to begin to recognize that these are bubbletypes of levels and the jerry, that is the yield, not only implicit in longer extensions on the yield curve, but also in terms of credit spreads or in terms of volatility yeah, and investor by holdingce carry more in cash and lowering duration, selling for bonds today, as your questions suggests. And ultimately trying to find a reversal. I dont think it is at that point now. Will beome point, it better served by selling as opposed to buying program tom buying. To get to mexico later. But right now, i want you to address the shock of a number of years ago when bill gross said we would have financial repression for decades. I would suggest looking at my screen, you are prepared to reaffirm that this morning. Think thats true. That is how Central Banks do it or that is one of the ways get out of a deck isis. There are several ways. You can grow out of it. We are not doing a very good job of that. Or you can hold negative Interest Rate, negative real Interest Rates come in order to basically take money out of saverss markets pockets. They basically strip savers of the real investment. So how long will this continued . The biblical extension in terms of seven and seven. We had high realtors rates for 20 to 25 years. Perhaps we need longer than seven in order to rebalance. Biblicaland within a span, we have not had a president ial Campaign Like this. When you take your prism of finance and economics and you put it over president clinton are president tromp, do you have an optimism that their politics can deal with americas financial repression . Bill i dont because governments, to my way of thinking, need some fiscal balance actually. Monetary authorities have been talking about the fiscal side for a number of years now. Bernanke was three or four or five years ago. I think we need to spend money, but we are not releasing that in japan. System is a really tight and has a law that maintains a fiscal balance budget. Both clinton and tromp are influenced by prevailing logic that says you should try to balance a budget in order to solve the debt crisis. I think that is just the wrong way to do it. I think we need to spend money. The other alternatives are infrastructure, etc. , etc. But the government needs to get in there and start writing checks as opposed to the private sector, which is not. Michael and remember bill clinton in 1993 said he wanted to die and come back as a bond market because they run everything . [laughter] you run everything, therefore, bill. [laughter] if they were to do some sort of physical effort, what would you tell people in congress who are terrified that by yields are going to go up and that will cost us so much money and taxpayers will have to pick up the tab and it is a terrible thing . Tol bond yields might go up certainly on the longer and and on the 10year end. Of thinking, rebalancing of the financial sector, yes, does that cost some corporations money . Yes. Does that narrow Profit Margins . Yes. But to my way of thinking, the fed has been focusing on wall , has always focused on wall street as opposed to main street. Not that they dont care about main street, but its about time that wages become less of a that other distortions become into play. Is justified by highridge or straights. Tom we want to show the Market Reaction. Here is the twoyear chart i showed you. These are all San Francisco 49er losses, all the last season. Im kidding. Fomc meetings. Bill come i want to show the abrupt retracement of the two year yield. Here we see enthusiasm we have had over the last number of months. And it is a massive reversal. The two yearn yield. Ake you obviously get kneejerk reaction to numbers like this. Miami looking at the w. A. R. P, fed funds probability of a hike. We are down to a 4 chance of a hike in june according to this. And only 30 chance in july. Those numbers are still seeing rs those two numbers are too low for me. Feds daysu say the on track. Maybe we are heading into a slowdown that we should be afraid of. Hell you could. Im with you in terms of the probability for july. I think it is 50 or more. By lets get back to the recent economic statistics. The atlanta fed now survey basically says we are looking a 2. 8 , 2. 9 real gdp quarter. If the fed cannot raise Interest Rates, then when can they raise Interest Rates . So to my way of thinking, they must back up what they havent talking about for the past few months about the normalizing and taking graduals thats. If they dont come ultimately, the market bubbles even more. Currencies become even more distorted. Stage forot a healthy capital. The fed lost credibility with the markets . Bill they have begun the journey. Think it is to the advantage of a Financial Markets and certainly banks and Financial Institutions to work h a positive yield core of yield curve. With a steeperer curve. I think the fed wants to talk up shortterm Interest Rates. Ultimately, they have to follow through or they lose credibility. A very balanced report, not the hysteria that we see in other reports. He says a series of increasingly negative revisions is not a sign of labor market health. One of his insights this money. Michael and he is also suggesting you throw up a number. Payrolls go haywire on occasion. Fed needsing if the to Say Something here to reassure people, to give Forward Guidance to people, that they are still on track, so that they dont seem like they are being pushed around by Market Reaction. Bill yes, i think yellen can address this situation next week. The 4. 7 Unemployment Rate. T basically follows the tail to produce some type of real Interest Rate, to the extent yellen. Is a 47 take that into consideration and basically continue to suggest a hike in july. And an additional one in december. Tom bill, how can she do that screamingollar yen even louder. My a looking at german yields that are jawdropping. A twoyear negative yield, negative points, 532 , doesnt that overwhelm any rational american discussion . Bill not exactly. Because it fits the global central banker and sets the lead. And there hasnce been, and there has been, from euro land, despite the wonder we all want lower Interest Rates and higher blossoms. These negative Interest Rates are being destructive in many ways. I think it some point, they have to stop, despite what draghi has said about whatever it takes. And if he continues, i think it the lower and lower shortterm rates on the negative side would not be destructive for a himalayan to crime decline. Tom bill gross, thank you very much. Generous of you to take such a very long time with us. I go back to the headline. Jonathan thanks to the Bloomberg Radio team. A stunning jobs number, the fewest jobs added in almost six years. Heres the Market Reaction. Switchr yields plummet, upthe board, a stronger euro by 1. 3 . Gold catches a huge bid. We will break down the jobs report 34 minutes away. U. S. Jobsa stunning report, the fewest jobs added to the u. S. Economy and him six years. Heres the Market Reaction. To year yield much lower. What does that mean for the dollar . Eurodollar pops higher, much higher, up by 1. 22 on the session. It is a much weaker dollar story. That is the biggest oneday pop since march. Ut gold catching a huge bid one question for the market is june really they realized meeting for the fed . David 30 minutes away from the opening bell. Just said it jonathan, a stunning jobs number. Jonathan i wonder who is writing Janet Yellens speech for monday and do they just do this . David we want to go immediately to erik schatzker. Take us through it again. There is not a lot of good news in there. Erik as you have described it, a stunning miss on job creation for the month of may, just 38,000 jobs created. The economists we surveyed were looking for 160,000, the median estimate. Lowest estimate in our survey, just to add more granularity to it, was 120,000. A huge mess. We have not seen this little job creation in america since september 2010. Down toployment is 4. 7 . But that is not good news because you had people leaving the labor force. Over the twomonth period, you had 800,000 people leaving the labor force. And that does put downward pressure on the unemployed rate. At the same time, it brings the participation up to 2. 6 . And that is back down to december levels. Wage growth is what thing we have been looking for. That should portend future inflation. That came on target. Worked also not really a positive, ticking down to 34. 4 from 34. 5. Very hard to look at this report with job losses in construction and mining and logging, for example. 34,000 losse, the in telecommunications and information. We believe that is largely from the verizon strike. It is hard to look at this report and find much that is , an auger for a hike in june. David who are the winners and who are the losers . Look at manufacturing and construction on the one hand. Only real winner was health and education. There were 67,000 jobs created there. I only have four months of data to go by. But that is 10,000 more than four months ago. So that is very strong job creation. Again, manufacturing down by 10,000. Mining and logging down by 11,000. Construction down by 15,000. Information and technology, down by 34,000. I mentioned there is a strong belief or anecdotal suggestion even on the part of the Labor Department because of the rise and strike. 34,000 on top at of the 38 thousand. We are still talking about only 72,000 jobs created. That, too, would be a catastrophic miss. In matter how you slice it, the economy is not creating as many jobs as it has done in the past. Created 29,000 jobs on average in 2015. Yes, that pace has slowed. But it has all fallen off a cliff in terms of pace for this month. Know this is going to be fodder on the campaign trail. The Labor Participation rate among veterans is down this month. It is down to 50. 4 from 50. 7 . That importantly, it is down by more for growth gulf war to veterans. That is an angry group of people if they can find jobs. And you also see the Participation Rate job paying for people who do not have a High School Diploma or college degree. David cohen thank you. Jonathan look at Federal Reserve expectation. The possibility of a move. Current implied probability. This is for the month of june. We are at 6 . We were trading in the 30s approaching that number. A real calibration of expectations. July is still hanging in there. A stunning reversal in expectations for a summer move from the Federal Reserve. Rifkin still with us. Jeff rosenberg joins us. Jeff, every year, yields must go higher. Guess what is happening now. Jeff years of expecting yields going higher, we have learned our lessons and we are going to be in a low Interest Rate environment for a while. Second on ther a reaction. I take this as an overreaction. There are a lot of special factors here. Certainly, it is a weaker poor. But we have to take a step back and appreciate that we expect payroll growth to slow. What you are getting here is outsized slowing in one month because of the verizon strike, because of temp help, because of manufacturing, which is a weatherrelated issue. Lets not go to overboard on how week this report really is. Isyour question, yes, this certainly by the bond markets and probabilities this makes makes june a very high hurdle for the fed to go. And the markets are pricing that in. We will get claire fixation on the speech. But it is going to focus on the next report. Jonathan monday, janet yellen has a speech to make. How should she communicate to the market on monday . Jeff what she is going to communicate is about the longer run trajectory around the improvements in the labor markets. On about one data point friday, but over the longer run trajectory, which includes the fact that the pace of improvement cant continue. Not because of the demand side of the economy. The kneejerk reaction is this is a recessionary signal because we are not eating as many jobs. But there are two sides to the job market. One is supply and the others demand. We are seeing constraints on the supply side. I think she can emphasize that. The other thing missing here is that we have seen wage growth. And you are seeing the strengthening in the wage picture. The most important one is the atlanta fed wage tracker, which is the best indicator for tracking we just. Better than what we are seeing in that ea chief. Highlight those pieces to make a case for an eventual the gradual increase in normalization. This actually helps are a bit, saying we did not overreact on the upside. And we are not going to overreact on the downside. Jeff it does. I think they truly were going to delay until they get through brexit anyway. Shes got something to talk about, wages, Unemployment Rate coming down substantially megan thats because people have left the labor force. It is not because of job increases, but because they are leaving. Jeff if you go back 12 years now, maybe its 15, when the Labor Department did a study on what was going to happen for the Participation Rate, it has done that. We have an aging population and these people are leaving the workforce. It means you have a height situation than you might have otherwise. And its not that people are leaving because they are all disappointed. They are leaving because they are retiring. Megan and we have done a well pointing out the positive points in this report. But 50,000 jobs lower than even the most pessimistic forecast. The huge split we see in this economy between people who have lower education levels in people who have Higher Education levels, how do you navigate through that and still get a picture of a sustainable recovery and an expanding recovery . That is a big challenge for her. Jeff it is hard to do without fiscal help. We are asking the fed to do with too much year. I look at the nonseasonally adjusted numbers to see what is really going on. This month, we added 650,000 net jobs to the workforce. That is below the historical number that has been around 900,000. This is getting adjusted, six hundred 50,000 is getting adjusted to 38,000. That is a pretty big i think we are seeing a very big change in the pattern of hiring and firing. And these numbers, for people to be adding the verizon strike to the seasonally adjusted number makes no sense at all. Jonathan kong i want to bring the attention of our viewers on what is happening the bond market. Yields, 11 basis points. And what is happening with the 10, we are down nine basis points on the u. S. 10 year yield that 1. 71 . A rally on bonds as well. Just seven basis points on your yield on the 10 year. Jeff rosenberg, this is your world. It is a global story. But it is a u. S. Domestic story as well. Every time it takes higher, you get a data point like this that pushes all pushes us all back again. Will we continue to be whipsawed . Jeff you bring up two parts to that. This morning as a domestic story. It is about the implications on the fed. Looking across a global yields, it is about the global story in terms of low Interest Rates. So yesterday was about ecb and draghi and expectations around qe. And what you are seeing on the long trend of global Interest Rate yield curves is for the pressure downward. Where will further expansion and qe come from . So perspective to the longterm yields in the u. S. , it is a global story. Highyielding instrument, these yields look very low. But on a global perspective, they are actually very high and that draws in Global Investments of the back end of the yield aree for investors who looking for places where they can get away from negative Interest Rates. Despite theronment, speech that janet yellen may or , you had this backdrop that come in the rest of the world, we are not having this debate over normalization. A differentg debate. The debate about how much more commendation can you get. David how long do you think you can nicely what is going here . It seems to me that is the path we are on to some extent. Jeff absolutely. You cant isolate it. We focus on one thing at one time. So this morning, it is about the u. S. And the front end of the yield curve is running the rally. But the attentional that that the growth of the fed, so be it. Yesterday, it was about the Global Factors pushing back into the u. S. David yes. Thank you. Thank you for staying on with us. Big news on jobs numbers. We have a lot more to talk about with respect to the jobs numbers. What they mean, the impact on the markets and be on markets, what they really mean for our economy. Jonathan a stunning jobs report. Heres the reaction on the market. No drama on the futures market. 15 minutes away from the cash open. Here is the drama. Twoyear yields go lower, much lower, down by 12 basis once to 0. 77 . A real calibration again of what the fed may or may not do this summer june is live is the catch phrase. We will bring you reaction from our guests. Heres the reaction in the fx market. Yourdollar, 31. 13, up 1. 61 . Oo the biggest oneday pop since march. Some big moves in this market on the back of that very disappointing headline number, david. David you said it. It is stunning. We will get back to that jobs number. Joined now by Stephen Engle under, head of global g 10 fx strategy. Stephen, we havent heard from you yet. Give us your initial reaction to these numbers. Obviously muchre weaker than the market expected. With the downward revision, making a june hike are unlikely, we know these numbers are erratic. The seasonality could have something to do with it, summer job creation. Past, if you look at the history of the deviation of from 12monthent moving averages, these big shocks, sometimes they tell you that things are turning. Most of the times, they tell you it is a data error. But it is not stopping the market from taking it seriously. The market seems to be somewhat sure euros. Equities are down. The euro is the big winner on this. When the chips fall on the equity market, it is probably not that positive for e. M. David i take your point is one data point. So help us. As potential investors, help us do that. What do we do next up with this in perspective and know that this is really a down torn a downturn are just a blip . Stephen part of the reason that the forecast was so consecrated is that40 to 160 range none of the usual indicators were telling you that there was an imminent collapse in employment activity. So you would look for some confirmation or contradiction from initial claims, from some of these other indicators that come in. Two 38siously, getting in a row would be much more. Eaningful these numbers are by nature erratic and we tend to take them as if they are gospel, but they are not. Reminded months ago that, in 2000 four, the fed still made the move, still height interestrate. Can you tell me why this is so different this time versus previous fed tightening cycles . Stephen i think in 2004, they had more confidence that the recovery was going and inflation was beginning to pick up. If you look in if you listen to the fed speakers, they were already concerned about european politics. There were enough speakers to rule yesterday. None of them are in any hurry to hide. So why hike when you have such a week number . Megan i want to bring you in on this. What is Janet Yellens communication strategy going to this . And how is she going to as we said, she is speaking on monday how does she communicate her path forward . Jeff communication has always been about data. Data dependence. If they are trained to raise expectations in the markets for their next move, they dont want to surprise the market. They will have to clearly acknowledge the disappointment of one report. But it is even highlighted. It is one report. So i think we will put that report in the context of the longerterm improvement you have seen in the labor markets. And perhaps the advantage of that illustrate the datadependent building, which does not mean attendance on the last day. Megan we have talked all morning about june being off the table. But how do we get more to two hikes . Are we still looking at a live july . Probablys have gone down. Jonathan highlighted it earlier in the program. You can certainly get two hikes because you have july. The also have september. And then expectations as you pause around the election, your second hike is in december. Wo scenario here is live. When we get more data points for september. Perhaps it pulls july back. But we will see. Will not citigroup like me doing this. But say you are the fed chair in philadelphia on monday. It is expectations for a rate hike. Rarely has it reversed in a matter of months. And now it is reversing again. What is your communication strategy . Stephen i think you have to leave it open. As jeff was saying, we had six years where the employment growth was basically 200,000. I think you would put it into context. That things are falling apart, but is not the only thing you will be looking at. I think july is still alive. Right now, fed funds does not have a whole highpriced in for calendar 2016. So there is a lot of pessimism and the market and that might be overdone at this stage. You would think that she would try to have some balance. Jonathan so june is dead. Long live july. Great to have you with us. Count down tos we the u. S. Open megan welcome back. We are still here talking with jeff rosenbaum, talking about this stunning jobs report we have seen. Little bright spot, which is that wages came. N at 0. 2 up how much are we going to see those wages continue to rise . Given that we have yet to see an actual data point, but potentially a stalling of that huge surge in the labor market . Good way to frame the conversation. It is one data point. We dont want to take too much out of the one data point where what we have seen in wages for some time now is a gradual strengthening. That is telling you about the timing of the labor market. And here is an important point. You can have slow down in Headline Payroll growth and that is not a recessionary signal. The point is that we should labor a slowdown good the market is tightening. But it is tightening because of the supply side. That is not necessarily an indication of the demand side. What wages or tell you about is the tightness of the labor market. You are now starting to finally see that. What we expect out of janet yellen on monday in terms of the speech, think she will focus on that tightening to the labor market and the wage picture and less on the headline big disappointment here this morning. Tuned in,if you just 38 thousand is the number, the fewest in almost six years, a big downs sides of rise on the headline number. Big moves in this market. The market opened about four minutes way. Though, no more drama in the futures market right here. Equity futures lower. But a third of 1 on the dow, the market opens next on bloomberg. Jonathan this is bloomberg go. Downside surprise for the jobs numbers. It comes out at 38,000 jobs. We were looking for 160. Down futures down about one third. Check out the eurozone, down by seven tenths of 1 . Switch up the board. It is the euro, a much stronger euro. , up 1. 4 on the euro. Stronger euro story. Cable up 145. Just an epic rally in treasuries. Treasuries surgery surging. Rude is doing its thing, a little softer. Lets get these markets open. 25 seconds into the session. Lets go back to abigail doolittle. Abigail we are looking at a weaker open for u. S. Stocks after that takes mainly bad payroll, the worst in six years. A little bit of a recovery off of the premarket lows. See ap futures, we do sharp dropoff after right here. We see this after the nonfarm payrolls was announced. The question will be whether we see a recovery as the day moves on as investors start to price in the possibility of a rightdelay. The possibility of a delay, the financials of all the big banks, wells fargo and jpmorgan down sharply. They make money on lending. We have the shares of Union Pacific trading higher here on market open. A buy. Was raised to a 20 upside potential for deere. Union pacific was upgraded to an overweight. Here is what is happening. We turn now to walmart, the companies countrys biggest rabbit employer. It is holding a Shareholder Meeting in arkansas. Shannon, walmart has been one of the companies that has five public battles with employees over wages, what price they should put them at. With a 50 minimum trying to be pushed through. How much do you think this battle will be talked about today . The company is very proud of what they have done on wages. They say that is helping improve the quality of their stores and customer service. One of the things the ceo has been touting and saying he has seen the benefits of increased wagers. There is a flipside of when wages go up for their employees, that means people have more money in their pocket that they can spend. Wages, even if they go up, that can be a positive thing for walmart. Megan we have seen a stunning jobs report with only 38,000 people added to the workforce, the lowest number in six years. Walmart, how at difficult do think it is for them to continue to refresh their own workforce . It is really interesting because as the labor market tightened, a lot of employers at the lower end of the pay scale had difficulty recruiting. As the market tightens, a will get easier for them to hire people at the lower wage and. There is an interesting flipside to this negative jobs number for walmart. It Never Looks Good for a company when people are out of work and have less money in their pocket, but walmart has historically done well in a down market. Earlier this year, their stock did well when there were all of these jitters. Their stock is not down that much today. Company as people see wages go down, they trade down. They look for retailers like walmart, dollar general, rather than target, nordstrom. Megan maybe good for walmart. Thank you. David we are going to turn back to this jobs report. Thank you for joining us. We just learned about this a little over an hour ago. Surprised. Y we did not expect this number. Where u. S. Surprised as we work . This is below expectations. I expected there would be impact from the verizon strike. That is why i called them to or three weeks ago and said we need to resolve this. Your workers and families are suffering, the company suffering, the economy is suffering. A big part of what we saw in this report was the impact of that strike. I expect to see that recovery in the following months. David fair point. But that is about 35,000 jobs. The expectation was for as many as 160,000. If you take that out, you are still way short. That is the direct impact. That was the estimate of the direct impact. We dont know what the Multiplier Effect is, other businesses that get impacted by this. At the same time, the report was below expectations. I look at the broader picture. We have had roughly eight reports since the recovery where we were under 100,000. You look at one month and it does not make a trend. What it is important to do is look at the big picture. Over the last six months, we have seen about 100 60,000 jobs a year. That is an apple level of jobs an ample number of jobs. What youre going to see is a tradeoff between the number of jobs and wage growth. When you look at average wage growth right now, it is 2. 3 annualized. We are seeing wage growth. That is a good sign. You look at the other bellwethers, and you dont just look at one data point. Firsttime claims for unemployment, those are at historically low levels. We have 65 weeks below 300,000. We have not had that since 1973. Auto sales, look at consumer spending, those things are up. When i look at the totality of the circumstances, was this report below expectations . Yes it was. Is the verizon strike part of it . Absolutely. Do we have more work to do . Absolutely. That is why we advocate for things like waging the minimum wage. More infrastructure spending, because we had an infrastructure bill last fall, but we need to do more. There is more work to do. When you look at the Bigger Picture, there are really sound fundamentals here. Jonathan there is a word in the u. K. That is used a lot, it is spin. Im hearing spin here. Trend, weok at this just had an ugly 38,000. I take your point on wages. This is a soft report. The last one was soft, too. What is the trend, three months, six months . Underweeks in a row 300,000 firsttime claims for unemployment. That is a trend. 75 months in a row of privatesector job growth, that is a trend. Auto sales continuing to be at record levels. Last year was the best year ever. That is a trend. We see a lot of things happening here that demonstrate that we are moving in the right direction. We have Unfinished Business. There is nobody here spiking the football, putting up Mission Accomplished sense, we have more work to do. The closer you get to the top of the month, and this is true in every recovery, the smaller steps you will take in job growth. Look at prior recoveries, we saw that. At the same time, you will start to see wage growth. That is what we are seeing here. Those are the tradeoffs you have when you are getting Economic Growth and recovery at this stage we are currently at. Jonathan lets talk about previous recovery. 2. 5 is a drop in the ocean considering where we were with wage growth in previous recoveries. Implement at 4. 7 . You talk about the mountain and how we are creeping to the top. A lot of people are talking about falling down the other side. I wonder if this economy has lost momentum. The trend seems to be popping out a little bit. Are we looking at a economy that lost momentum . I think you have to look at the Bigger Picture here. Over the last six months, we have 150,000 jobs a month. We need about 175,000 jobs a month to sustain the current level. You look at firsttime claims for unemployment, so that is one of the most reliable predictors. We have 5. 8 million job openings right now. In the recession, there were seven jobseekers for every opening, now we have 1. 4 seekers for every opening. We need to work on Labor Force Participation. The irony of those who criticize Labor Force Participation rate are those people who oppose efforts to put in place 21st century pay policies. We know how we can increase Labor Force Participation, that is doing what the rest of the world does. Payng a sensible federal freeze policy so we would be like canada and germany and other countries whose female Labor Force Participation rate are higher than ours because their Public Policy reflects this. We know what we need to do. Folks in the Republican Leadership dont want to wage raise the minimum wage. Megan you said no one is spiking the football. This week we saw the president touts his economic record of the ministration. Two days later, we see a labor Market Report that indicates severe weakness across several sectors of the economy. How do you escape the fact that it seems like momentum and risk is to the downside . Every month, it is funny, i recall. What the president did is talk about where we were when we took office. We were losing 2. 4 million jobs in the months before he took office. 75 months in a row of privatesector job growth. We have seen the auto industry. They were on life support, and Republican Leadership said pulled the plug. Then he talked about where we need to go. We need to make sure that we continue to pursue the Unfinished Business which is to make sure that the wind at our back results in shared prosperity for everyone and not simply prosperity for those at the top. Jonathan you make a fantastic point. I want to wrap this up. If the trend and the momentum is so good, why has the fed only been able to hike rates once . We dont comment on that policy. Every time i get asked that, ive leave that to the fed. The verizon strike workers, we brought them to the table. We continue to advocate for raising the minimum wage. Passing sensible paid leave policies. Additional infrastructure spending, these are the things that will create more jobs and put money in peoples pockets. When people have money in their pockets, they spend it. That helps the economy. What i hear from businesses all the time, they say they need more customers. One of the best way to get customers is to put money in peoples pockets. David i want to thank you for being with us. Seniorkes me that when government officials, during difficult days, it is particularly beneficial. Thank you for being with us. It is always a pleasure. Jonathan equities opened a little bit lower. We will wrap it all up. To bloomberglking intelligence and Jeff Rosenberg of blackrock. The conversation on the payroll report continues on bloomberg go. David this is bloomberg go. Outf economic advisor, other will be up next. Jonathan this is bloomberg go. We are 15 minutes into the session. An interesting session to say the least. Lets check it out. Features were negative going into the open. This is how we stand. The s p 500 down. 5 . The dow down. 5 . In the wider market, a real move with yields grinding low. 10 year yields down. A weaker dollar. Carl riccadonna from Bloomberg Intelligence and Jeff Rosenberg from blackrock. What is your take car of . Midyear rate hikes took a big step towards july. I thought june was too soon. There is a lot of uncertainty in the economy. The weakness in this report, we always say one month is not a trend, the labor secretary said as much. The revisions over the prior two or three months start to establish a trend. We see a pronounced deceleration in the labor market that reflects the deceleration we saw over the last couple of quarters. This is not a verizon strike flute. That is not the entire story. This is the labor market downshifting in response to a economy that is downshifting. Some economists will tell you we are at a full mature economy. That is not what we are seeing. If we were a mature a commie, that would be accompanied by an upshift in wage pressures. Is not what we are seeing here. We are seeing steady wage pressure and downshifting in hiring. That raises real questions about the underlying momentum in the economy. This means janet yellen on monday morning as a chance to make or break midyear rate moves. Final point, the most important data point ahead of the july meeting is june payroll. Jonathan this was in your report for Bloomberg Intelligence. Talk us through. Whys it so much more important . Carl this goes to the point i was making about maturing business cycles. The orange line is the pace of nonfarm payroll. That is a 12 month moving average. The white line is average hourly Earnings Growth. What we can see in those circle regions is as labor costs accelerates, as the price rises gain,e rising earnings businesses try to manage the cost. Each of those cycles, as labor costs rises, the pace of hiring moderated or downshifted to we can bring the chart up one last time. On the far righthand side, you can see we are not seeing a pronounced acceleration in labor cost just yet. It will happen as we move further below 5 unemployment. It is not happening now. Rising labor costs are not explaining the downshifted in hiring. Megan i will give you a difficult task. You are janet yellen, what do you say about this on monday . Is a i would say, this disturbing trend or a troubling trend. June is too soon. We need to wait for clarity. We are confident in the outlook. This does provide a check mark against that confidence. We need to wait for more information. Potentially we will have that information in time for july. If she only halfheartedly defends a midyear hike in july, then time is running out this year. July, halfheartedly still and to hikes in 2016 left. Jonathan the payroll report came out just over an hour ago. The headline number comes in at 38,000. We were expecting 160,000. Was estimatedate at 4. 9 , we came in at 4. 7 . Earnings 2. 5 . We are 20 minutes into the session. Here in the united states, much lower in mainland europe with the dax down by 1 . A much stronger euro. Eurodollar at 11315. Lower. My question to you would be, about a month ago everyone was saying the fed will do nothing this summer. Then everyone said the fed will do everything this summer. One data point, they will do nothing this summer. Talk me through this overreaction to the downside and the upside. Jeff there is certainly a lot of shorttermism. Markets are affected by the moment. Todays move is what you are seeing. In terms of shifting back and forth, the fed did not want to have zero probability of a hike. That is what the market has priced in. The debate was always june, july, today and this morning is about pushing off june. The june payroll report we get next month, it will take on heightened importance because two points determine a line. Right now we can say this is a oneoff, it does not change the longerterm trajectory. The next report might have that effect. That will take on greater importance. David thank you. Carl riccadonna, he is our chief u. S. Economist. Coming back on bloomberg go. It has been a wild day here. David this is bloomberg go. We thought this would be a big day because of the payroll. We did not know it would be this big of a day. The shocking number, 38,000. We talked earlier with bill gross. Take a listen. Bill i think it is enough of a shock to delay june and july for sure. The fed has tried to convince us that one or two heights this year is in the cards i think they want to normalize the yield curve and shortterm rates. A number like this cancels out in my thinking june in combination with brexit. We will look for july. Jonathan that was bill gross speaking to bloomberg moments ago. What a day we have had. Look at the reaction. Fed fund futures, i can bring it up on the bloomberg. We have dropped low 5 for the months of june. This is remarkable. Going into the payroll report, we were at the 30s. This market has swung so much in the last month. From no rate hike to write tight and back again. David the market has been so desperate for some sign. Im not sure this sign. [laughter] megan for me it is 50,000 jobs last than even the most pessimistic forecast. We can call it one data point all we want. It is a data point that matters today and will manner to janet yellen on monday. Jonathan we will talk about whether it is an outlier for the next several weeks. One of the questions i have is why it is an outlier. What is the evidence that it will be an aberration . We will find out. Were going to have special interviews next week. I will have an indepth look at general motors. We will have that on tuesday youre on bloomberg go. Jonathan that is it. What a day. We have had a big downside surprise on the payroll numbers. Almostu. S. Jobs added in six years. For myself and david westin and megan murphy, thank you very much. Bloomberg markets is up next with equities lower in the united states. Down. 6 on the s p 500. The dax getting slammed in europe. Treasuries surging. It is 10 00 a. M. In new york from new york, i am betty liu. Mark from london, i am mark barton. This is bloomberg market. Betty more breaking Economic News out the really disappointing may payrolls report. Underwhelming. Bloombergs julie hyman has the latest. Julie we have not only the jobs report, but we just got a measure of these Services Industries coming in below estimates at 52. 9. Estimated. At was the largest portion of the u. S. Economy. We also got factory orders rising 1. 9 in april. This is a months lag, which is in line with estimates. Durable goods orders up 4. 2 . But theco