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tv   Bloomberg Surveillance  Bloomberg  December 3, 2021 8:00am-9:00am EST

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>> the messaging from the curve is very pessimistic. >> a lot of what is going on in the market now is pure risk management. >> i hope that someday in my career we focus on valuations. >> for now, corporate profitability looks pretty good. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone. jobs day on radio and television , across america, around the world. it is an omicron jobs day.
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the story changed with this new variant. jonathan: you think we are omicron dependent on december 15? does this data matter for the federal reserve? tom: andrew bakaj would -- andrew pekosz would say yes. this is an america on the go. this is an america doing better. we will see that in the report today. 500,000 jobs created? come on, it is a boom economy, but there's omicron to get in the way. jonathan: the belief that the federal reserve is ready to go to speed up that paper. maybe we start to have a conversation about higher interest rates through the yield curve. we got a flatter curve this week. tom: we've got to go to the data check right now. let's do this with one statistic, the vanilla spread. the difference in yield between the 10-year and the two-year, 79.4 43. that is a telling statistic. jonathan: that is how we ended the year last year. just a total round-trip on the
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yield curve, the spread between twos and tens. we were talking about hopes, dreams, and memes. the hopes and dreams of q1 2021, they are gone. tom: on jobs day, it is a stew of opinion, but mostly it is a stew between a political america and i financial boom economy. lisa: and a federal reserve perhaps responding to the political reality of inflation. how much has the conversation of the fed shifted away from the jobs report? with a sliver market report be as important as some of the previous ones to the market response given the fact that inflation seems to have taken the forefront in the fed's consideration? tom: this guess we have coming up, savino subramanian of bank of america, too important. the vix goes from a 28 level, the 30 level of two days ago, down to 27.19. jonathan: futures positive on
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the s&p, a 0.1%. on the nasdaq 100, up 0.2%. the high estimate for year-end next year, 5300. the low end, 44 hundred. bank of america at 4600, year-end 2022. tom: a german announcement on vaccination. swiss franc stronger, -1.86. the yield today, it is going to be fascinating to see where you are on that after this jobs report. the real yield now -1.06%. jonathan: that is the conversation when it comes to how deeply negative rates are in america versus where inflation is, versus where nominal growth is as well. we have not been here before. that is what alan ruskin of deutsche bank was talking about earlier this week. the big conversation about rates is about where we end. how far does the fed have to push to even tighten? tom: savino subramanian doing
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mathematics at berkeley is very aware of the x axis, and brilliantly in her cautious report for bank of america, she looks up the sequence from taper to tighten to tina. what happens to tina? if there is no alternative, how do we get to? savita: i think tina is in peril, and she needs to be careful because here we are in an environment where the dividend yield on the s&p 500 is below where cash yields are likely to be in a year or two. so all of a sudden, cash looks really attractive in an environment where our economists are forecasting eight hikes over the next couple of years. think that is an environment where you want to own free cash flow, but you don't necessarily want to own the entire s&p 500. so i think we are in an environment where it gets tricky. you are seeing volatility. i think the negative real rates
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environment is really interesting because we are now just accepting this as normal, and this remind me of 2000, when we all accepted a negative equity risk premium as normal. this is not normal. negative real rates are abnormal, and i think they are telling us that something is essentially wrong, and we need to see some sort of correction income at the very least, bonds, to get us back to a more normal setting. i look at a lot of the statistics right now and it looks very similar to 2000 from evaluation, expectation, euphoria perspective, and it also looks pretty similar to the late 1970's or the mid-1970's, where folks are really not prepared for the types of inflationary shocks or the sustained inflation cycle that we are like a dizzy. jonathan: -- we are lightly to see. jonathan: a lot of people would point out the heavyweights on the s&p 500 are delivering massive growth. what would you say to the people who bring that up?
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savita: i agree, and i think the bubble right now is not in stocks. it is in bonds. that is what we have to do from a stock perspective, figure out which stocks are going to be hurt by rising interest rates, by rising equity risk premium. you are seeing really funky stuff happen in the markets right now, and i use that as a technical term. for example, if you look at the treasury market, one of the biggest markets in the world, it is starting to show signs of liquidity risk. we are seeing china real estate which is literally the largest asset class in the world starting to fray. we are more likely to see the pain. from a u.s. equity perspective, mega cap tech still looks pretty good, but everybody owns it. if we are in an environment volatility starts to creep up and we have to rebalance, i think the s&p will be one of the
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risk asset classes were selling, and that is where i worry about downside. lisa: what is going to pop the bubble if the federal reserve has not done it? savita: here is where i think it gets interesting because if you look at what pops the bubble in stocks in prior cycles, it was a very similar landscape to what we are setting up for now. we had a fed starting to tighten into a statistically overvalued market. that is what we saw in 2000 and a couple of prior market peaks. we had inflation except patients lower than where i think inflation is going to be over the next couple of years, and we had an environment where asset allocators were very bullish on stocks. one of the eerie similarities between today and the prior three market peaks is that we saw asset allocators like the wall street sell side
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strategists increase their allocations to stocks by about seven percentage points heading into that market peak. that is exactly where we are now. a lot of numbers are rhyming with market peaks in prior cycles. it might be a story for negative real rates. lisa: this gets to the negative real rate discussion. they are rhyming, but it is a different circumstance with a federal reserve that has from greater willingness to step in if there is market turmoil. a lot of people are saying don't fight the fed put. do you think they are not going to come in in the face of turmoil? savita: i think they are going to try to fix everything, but the fed has tried to create an inflation cycle for 10 years. who's to say they are going to be able to keep it under control ? i think the fed is certainly not in a position where they want to roil markets and scare
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investors, but i just wonder, do they have the tools to essentially accommodate an environment where inflation is starting to rise, economic activity is building, and that is positive for the economy, but we are starting to see labor inflation really creep into margins. this is an environment where i don't know if the fed is going to be able to quell market volatility. the other thing i think is interesting is that right now we are in an environment where our rates strategists are forecasting a pretty big pickup in rates volatility, so we are more likely to see rates volatility, more like leeches the equity market volatility. this is a different admire met them what we have enjoyed over the last couple of years or even the last decade, and in that environment, the number one factor we need to care about is the cost of equity capital. if volatility rises, the equity risk premium increases, and that is basically game over for a lot of these longer duration stocks
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and companies that have thrived on a falling cost of capital. i don't want to sound to alarmist -- sound too alarmist, but i do think the probability of a 10% correction in the near-term or over the next 12 months is elevated, and our market forecast is flat. we're not looking for down market returns, but over the next 12 months, i think it is going to be a tough grind. jonathan: my approach to this job has always been to respect the forecast because the forecast, by definition, cannot be wrong. it is a forecast. when you look back at this year, your forecast ultimately fell short of where this market was. i just wonder, the lesson of this year, what has it been for you and the team as we look ahead to 2022? savita: i think the lesson this year was don't underestimate corporate america. this is why i think if i am wrong next year, it will be because corporatess manage --
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corporates managed to keep margins intact. that is not something we were penciling in at the start of the year, was falling equity risk premium, so it is pretty shocking, a lot of the trends we saw this year. i think negative real rates, the fact that we are now forecasting negative real rates, that is not something i thought was going to be in the landscape of realistic assumptions. jonathan: we have a ton of respect for human the team. thank you for being with us. looking back on this year and looking ahead to next year, some really firm calls coming from bank of america looking ahead to 2022. tom: let's not forget, francisco blanch walking up to $100 a barrel. that gets your attention. jonathan: that payrolls report 20 minutes away. from new york city, this is bloomberg. ♪
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ritika: traders are waiting to see if the november jobs report is as strong as surveys forecast. according to the median estimate of a bloomberg poll of economists, employers added 550,000 jobs last month and the on them lemon rate fell to 4.3% -- the unemployment rate fell to 4.3%. congress has averted a u.s. government shutdown on thursday night. the senate passed a stopgap spending bill and sent it to president biden for his signature. the bill will pay for government operations through february 18. without the measure, the government would have been forced into partial shut down after midnight friday. in new york, dozens of hospitals are nearing capacity as the state reported the most new coronavirus cases since january. more than 11,000 cases were recorded. at least five cases of the omicron variant have been found. at 56 hospitals in new york, but capacity is 10% or less. today, state officials will be allowed to limit nonessential
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hospital procedures. elon musk keeps advancing towards his goal of selling 10% of his stake in tesla. according to a filing, the world's richest person offload another $1 billion worth of shares in the electric carmaker. the sales were to help them offset taxes on the exercise of stock options. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. ♪
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>> this is a much more rapid recovery and we are very follow
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-- very far along towards full employment with the fed still doing qe and short-term interest rates at zero. that is a policy that will cement a more permanent inflationary backdrop in place if policy does not adjust. jonathan: in the fed seems to get it. before we get there, payrolls or 12 minutes away. inflation data at some point next week. going into payrolls 12 minute the way futures near session highs. positive 0.2% on the s&p. yields come in a couple of basis points on the 10 year to 1.423%. just hearing from south africa's national institute for diseases, just getting some early data on things. going to read it out verbatim and you can draw your own conclusions. 61.1% of admissions were severe. in the early fourth wave, that number is 32.9% of admissions
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are severe. there's a huge focus on the omicron variant, and we are all waiting for a fuller picture of things. this is an early take by south africa's national institute of disease. 66.1% of admissions were severe in the early third wave. at the early point of this wave come of the number is 32.9%. tom: quickly, to get to our guests here. i don't see south african rand really moving on this, but i would suggest, somewhat off of this news we saw, a continuing flattening here, with the two-year yield in america, a higher yield which is a sort of sigh of relief move. jonathan: i want to go back to the process, and the process for all of us is as follows. how contagious is the disease? how severe is it? how well do vaccines stand up to it? to get a full picture of this, we might have to wait another couple of weeks. but early indications indicate, everywhere we look at the
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moment, that the cases have been quite mild. we are hearing from south africa this morning backs that up. though as i say, and i keep repeating this, i will stress it again, it is early days. we need more data. tom: right now, michael mckee to join us to get a set up for this really interesting december report. james glassman joins us, head economist at jp morgan commercial banking. what is so important in having you on is severe to super money and -- is savita subramanian was just on with a cautious view for 2021, and jon said, where were you off the mark? she quoted glassman 101, which is corporations adjusted. how are corporations adjusting into 2022? james: they have done an amazing job because they had to survive, so they have learned how to do with the amazon way, which is
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how to get on the digital channels. the guys who did that did quite well. the national output is back to where we had been had there been no pandemics, but we are doing it with a lot fewer people, which is why i think the fed is hopeful that we will pull all of these people back in and not run into the inflation problem. that is going to be the interesting debate. tom: with all of the work you have had across america, or operations -- are corporations managing for the neck quarter, or do you see any developing in the three year business plan? james: there's a lot of that discussion going on. people are asking if we are going to be dealing with supply chain problems, should we be seeing some of this work?
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on the other hand, what they are realizing is it is harder and harder to find people read you are having to pay more for workers. which of those phenomenon are going to be more lasting? i think what people are saying let's sit and watch, but that is really what people are looking at. they are trying to figure out where this is going. they are dealing with price pressures and all that, but that is the number one question for folks because they have got to be thinking more about automation and where they should be locating a lot of this stuff. i think more people realize these bottlenecks we've got at the l.a. ports in the trucking channels, they are not going to go on forever. we are going to get through them. then you are going to ask what is the more lasting impact, the higher cost of labor or the kind of congestion we've got. lisa: what is the most
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interesting aspect of it to you? is it the headline number, the wage increases, or labor participation? james: i think the issue now is becoming more labor participation because we've done a good job getting back to where we once belonged. we've got unemployment down almost back to where we were before, and now the issue is what about those 4 million people who dropped out last year, which is the reason why you are seeing so many signs of them coming back in. if the fed was to normalize its policy, but they are going to be a little more cautious if they see signs that more and more people are coming back in. we are not really quite there. jonathan: we've got to run. good to catch up ahead of payrolls, as we always do. we have to leave it there because, drumroll, mike mckee made the ring walk. we need to record that ring walk
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as mike mckee made it into the studio. what are you looking for? michael: we are looking for something in the range of the consensus, 550,000. the whisper number on wall street only a tick higher than that. this is going to be a checklist for the fed report rather than anything that is decisive. if we get something that people are more or less expecting for employment and labor force participation, the fed can say we are done and move on to increasing the speed of the taper. tom: in the 47 pages you read and no one else reads, there will be a paragraph on holiday employment, amazon hiring 4 million people and all of that. further -- is there going to be some goofiness in this report? michael: we are not expecting anything, but everything over the past year has been goofy. they take into account the holiday hiring, although the interesting thing is with the
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difficulty we have had getting people to take jobs, we have had more companies announce holiday hiring numbers than ever before. can they find those people? the one thing, if you are one of those people who looks at the 47 pages, look at warehouse and couriers. that is where the numbers show up because that is where all the temporary hiring czar -- temporary hirings are. lisa: this really goes to the hourly employment. what is the whisper out there? we are seeing 5% as the estimate globally in terms of the year-over-year wage increase. what do you think it is potentially to be? michael: that is probably as good an estimate as any. that would imply a 0.4% increase on the month, which is what we have been seeing. the fed would like to see that continue to rise, but maybe not at that rate. if we are getting more people into the labor force, that will take some of the pressure off of it. it's all things they got to
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consider. they got to put all of this together. jonathan: sit tight. we are form 15 seconds away from the payrolls report in america. full reaction with mike mckee jeff rosenberg blackrock. 550,000 is your median estimate. the number comes next. from new york, this is bloomberg. ♪
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jonathan: live from new york city, we are seconds away from the payrolls report. futures up nine on the s&p. 8:30 eastern, let's get to mike mckee. good morning. michael: the change in nonfarm payrolls comes in over half the level we anticipated, 210,000. that is a real surprise. that will cause some head scratching at the fed. what we do about that? the unemployment rate dropped significantly, 4.2%, down from 4.6%. let me quickly check. i suspect the civilian labor force, it did rise 594,000 people. the household survey shows over
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one million jobs, 1.1 million employed, where unemployment drops 542,000. a good news story on the unemployment rate but it does not match up with what is going on on the establishment survey. 210,000. 31,000 of our manufacturing payrolls. average hourly earnings come in later. .3%. average weekly hours is 34.8. the one everyone wants to see is the labor force participation rate. as you can imagine, it does pick up significantly to 61.8 from 61.6. the estimate was 61.7. the net payroll revisions for the month and i will let you check the markets, september revised up 67,000 to 370 never thousand -- the 379,000 and october revised up.
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a revision higher than the previous two months and not the other revisions we saw in the prior month's. jonathan: early days and a knee-jerk reaction in the market. the downside surprise on the headline numbers come equity futures to session highs, positive 19 to 20 points. look at the yield curve. the bid snaps into the belly of the curve, five-year yields in four basis points come the two in about one. a big rally through the front end into the belly of the curve. we are adjusting the rate hike debate a little bit but i do not want to draw conclusions off the back of this too much. a big downside miss on the headline numbers. the actual is 210,000. when you look at the unemployment rate and participation, really interesting labor market report outside of the headline number. tom: will have to adjust on this. nasdaq up .8%.
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mike, you mentioned this as a pro, and i think this is a concept people flunk in econ 101. you just set the labor force went up but nonfarm payrolls disappointed. most of our listeners and users are saying huh? how is that? michael: you will have some semi professional economists on to explain it because i cannot explain it off the top of my head. the surveys diverged tremendously, the household and the establishment surveys. it is hard to know why if that many people were out looking for work with that many job openings they did not get the job. let me pass on other news that will bear on what the fed does. jay powell has made it clear they're looking to improve the employment rates for minorities and boy did they improve. black unemployment falls to 6.7% from 7.9%.
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the hispanic unemployment rate falls to 5.2% from 5.9%. significant progress there. if you're looking at this report in terms of what the fed said and you left out the headline number you would say this guarantees the fed to taper, they are reaching their goals. the question is what happens to people getting jobs. tom: we are starting to see a market reaction. we are starting to see this piece together with the mystery of two separate labor report. you have equity market left. jonathan: we are up .4 on the s&p, on the nasdaq up .6%. the focus went to the belly of the curve. we have given some of that up already. if you strip out the 210,000 and you look at unemployment and participation, a fairly decent report. lisa: it a terrific report. 4.2% unemployment rate puts us
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back to february 2020 in terms of how low the jobless rate is. people are coming back in. this comes as the fed stresses inflation and deemphasizes the employment report. to wrap things up, isn't this a very good report in the fed's eyes? michael: it seems to be. i'm trying to figure out where the holes in the report are. we see professional and business services adding 90,000. that would include the people who come on for temporary jobs. that is assigned we will see further employment going forward. we talked to tom about the transportation and warehousing and couriers, that was up 50,000, 210,000 above february 2020 levels. that area has completely recovered. 31,000 for construction and manufacturing. we are seeing strength and some of the places we thought we would.
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where we did not see strength is leisure and hospitality, up 23,000. that is not a huge gain compared to how low they have been. employment according to the bureau of labor and statistics is down 1.3 million. i'm wondering if part of the problem is people are coming back into the labor force and the jobs there qualify for do not exist. restaurants and bars going out of business. jonathan: we have a lot of questions. often with payrolls the first move is not the move that sticks that might be true with what is happening the front end of the curve. we have given some of that up. to mike's point, when you get away from the headline number, there's not much here to steer the fed away from what they've discussed all week when they get together on december 15. tom: this emphasizes they will wait for more data with two different reports. a lot of people parse this, including jeffrey rosenberg.
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jeffrey, when you get ambiguity like this, what you do? jeffrey: it is a really interesting report. you guys have broken it down well. it may not be so ambiguous when you look behind the headlines. the headline is a disappointment on 210,000, but a lot of that looks like seasonality and the impact of seasonal flows coming in lower than what the seasonal factors would otherwise expect. you get disappointment on the headlines. as jonathan went through, the initial market reaction is looking at the headline number. give it a minute and you look at what lisa talked about, which is a much stronger message. the decline in the unemployment rates. the impact of labor force participation finally coming back. this is the strength of the underlying labor market.
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you look at the market reaction fading that initial disappointment it is spot on, and that is the bigger message. tom, i do not think this report changes anything from the fed with regard to the labor market. it is the crosscurrents between the headline in the underlying components. i think the underlying components are much stronger. jonathan: we have to talk about the fed. let's discuss their forecast. next year they have unemployment at 3.8%. we're almost there, 4.2%. how much of an adjustment we need to see in a couple of weeks? jeffrey: we could certainly city adjustments come down as they keep pace with how rapidly the labor market is improving. i think they are closer on the jobs front than the other forecast, which is the big topic, their inflation forecast. i think that will be the driver into december 15.
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and of course the other big story, the elephant in the room, this report does not have any of the covid omicron issues we still have in front of us. over the next 10 days we will find out a lot more and that will drive that debate into the fed meeting. jonathan: i would agree with you -- lisa: i would agree with you that the underlying components point to a strong report aside from the headline miss. i am confused by average hourly earnings and how much we are seeing wages in recent. that was a disappointment and to me it fell in terms of the pace of wage rises from month-to-month. what you make of that? jeffrey: it is hard to know what is going on there. a lot of the month-to-month variability is confusing based on the shift in the underlying shifts of who is coming in and who is coming out.
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if you look at average hourly earnings as opposed to other measures, what you end up seeing is a measurement of two things, the change in who is coming in and out and what is the change in what they are getting paid. we have lower wage workers entering the pool relative to higher wage workers that can push down what you see in average hourly earnings, even if what we think of as a fixed pool of workers, wages are going up. the message on that is fixed pool metrics have been great while clear that we are seeing pricing power come back to wages. i do not think this disappointment on average hourly earnings should be overly interpreted as challenging that story. it is still a strong labor market with strong labor market pricing and wage inflation. jonathan: 60 minutes away from the opening bell. nasdaq 100 futures up .6%.
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counting down to the opening, will be catching up with mohamed el-erian and rick rieder, mike collins and anastasia amoroso to break down the jobs report and get reaction from the white house in about 50 minutes. tom: the reaction of a market lifting up. i would note the nasdaq 100 up .6% and the vix escaping the 30 and 28 level, 26.18. jeffrey rosenberg with us with blackrock. i want to talk about systematic edge responsibilities at blackrock. i do not care about systematic even out into january. how are you managing allocated capital to the middle of next year, say july 28 fed meeting? jeffrey: this is a really good question because what we are debating is the bigger picture away from today's report is the fed is talking about the
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accelerating the pace of tapering so they can accelerate the pace of tightening. markets have priced that in. a lot of that changes with us. the bigger change we all have to contemplate is the impact on real interest rates. you have had a spectacular level of support for active inflation across all markets, whether they be financial markets or otherwise from exceptionally low levels of real interest rates. the fed is basically saying it is time to change that outlook. we should expect a very different financial market outlook in an environment where fed policy is reacting to the exceptionally accommodative settings of negative real interest rates. that challenges a lot of investment returns we have seen, investment portfolio strategies. we are looking at where are their vulnerabilities and where are there opportunities in a rising real rate environment?
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lisa: as we speak and as traders parse through the report, two year treasury yields have turned positive on the day. .6171%. people assessing the underlying components and seeing a strong report. with respect to fed hiking, how many rate hikes can this market would stand and not be disrupted from a risk asset performance perspective? jeffrey: great question. look at what the bond market is telling you with this massive curve flattening. it is a clear message from the bond market that it cannot withstand that much increases. what you see priced into bond markets is an expectation the fed will do what they are telling you, increase the pace of rate increases. we have priced in from one hike in 2022 to two hikes. it is not a super aggressive
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increase. when you look further out to see the pace of pricing in of interest rates by the fed starts to fade relative to the fed dot plot and that is reflective of the expectations that financial marketing conditions tightening, the impact of rising real interest rates cannot handle as much of the normalization of interest rates as the full trajectory of fed normalization the dot plots otherwise would say. the flattening of the yield curve is a message we should pay attention to. it is basically saying we should move into an aggressive fed tightening policy that the impact is going to slow the economy, tighten financial conditions and is a warning of a recessionary indicator. whether the fed goes there, we will see. that is what the bond market is saying. tom: very quickly as we move on to the equity market, the ambiguity of today's report,
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does it change the path or the cadence of taper to tighten? jeffrey: i do not think it does. as lisa just highlighted, the turnaround in the two year, i think the market is figuring out this is not a disappointing payroll report that takes the fed out. i think the pace is -- the narrative is still the same, pricing and the acceleration. how far the market gets ahead of the fed or whether the market can push the fed to go even further is the next phase. we have priced industrial hikes in 2022, accelerating the first hike to june or july of next year. will we get more? i think we will have to see more data. were worries from the fed on inflation and a willingness to be more aggressive before we get there. tom: thank you so much. lisa abramowicz and tom keene,
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we welcome all of you on radio and television across this nation. big u.s. jobs report according to michael mckee. always unambiguous gina martin adams joins us, chief equity strategist at bloomberg intelligence. but i see is the omicron fear with the vix at 30 and we are back down to 26.24. is this another vote that corporations will adapt and we need to own shares? gina: it is all in perspective. the vix at 26 is usually affiliated with the market meltdown. we normally would not have a vix above 20. considering where we have been where the vix was at an all-time high in march 2020, we are still seeing the vix correct, we are still seeing volatility normalized. i think the market is increasingly comfortable that
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the economy has reached -- that is part of the 2021 story. we feel a lot more comfortable that we are going to see more consistent economic growth. the big question is not necessarily how does the economy react to the variant, which has created short-term volatility, but what is the fed going to do, how fast is the fed going to tighten, and how will rates have a snowball effect on valuations in the equity market? we have seen valuations accelerate precipitously over the course of last couple of years, reflecting that extremely easy policy, low level of interest rates and very steep yield curve. i think going into 2022 it is more about rates why we get more comfortable with economic growth. it may be choppy. very consistent into expansion from raqqa operate. -- from recovery.
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lisa: given that we are pricing in two rate hikes and it seems this labor market has not derailed those expectations, has the equity market price that in or are they in a wait and see mode hoping it will not be as significant as the market is pricing on the bond side? gina: it is more than rates. the equity market is looking yet what is happening with the balance sheets, and this is consistent with the experience of the last cycle. there are several stages of fed tightening we have to go through. the first is we have to contend with the idea that a taper is coming. that is part of what we experienced in the september correction. now we are going through the process of the taper may be faster than expected. that is part of the second correction. we have yet to get to the point where the balance sheets stops rising. that is the point of greatest risk historically. we still have a period of
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liquidity coming. a taper does not mean the fed is taking away the punch bowl, it just means they're filling it less quickly going into 2022. that is supportive to equity market valuations as long as the bond market does not react in a vicious manner. midway through 2022 we get to our critical point in time when the taper ends. i do not think the equity market is thinking about the rate hikes an area given we have so many steps to go through. lisa: meanwhile markets are discounting mechanism, which is why you emphasize the unknown of the bond market reaction. i would love your take on what bank of america was saying, that a certain point it we start pricing in three or four rate hikes, cash starts to look like a very good alternative to the dividend yield on the s&p 500. is that a compelling argument against the move much higher in the index? gina: i think it will create a
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bit of rotation in the index. you start to see a different economic environment if investors are starting to rotate out of equities. frankly that is a long way from where we are today and certainly not going to drive stocks in the next six or 12 months. the dividend yield is still a far cry from where we are on the short end of the curve, so i would say it is a bit of a stretch to suggest we will price that in imminently. it may be something to contend with at the end of 2022 or early 2023 as we look early 2024 or 2025, but is not the story for me for early 2022. tom: look forward to the publishing of bloomberg intelligence over the weekend and into next week. michael mckee not listening to gina martin adams. he is buried in the data. what is beneath the headline data? michael: the biggest thing is a scene lit -- a seasonal
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adjustment factor. the total number of nonfarm jobs on a nonseasonal basis was 700,000, so we lost about half a million jobs to the seasonal adjustment factors in the month. neil dutta points out the fed's survey of economic projections is based on the unemployment rate and not the total number of nonfarm payroll jobs. the fed will be looking at the unemployment rate and the figures underneath that for good news. health care is big in the keene family, hospitals lost 3900 jobs during the month. we heard a lot about nursing burnout and dr. burnout -- and doctor burnout. i wonder that is a seasonal thing and there is a real loss of jobs. tom: one more question.
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seasonal adjustment. people flunked economic exams over that. with all of your research, do you have belief in the validity -- in the validity of seasonal adjustment given the shock of this pandemic? michael: i believe in the validity of seasonal adjustment but i think it has to be very hard to do now because the numbers have been so wide that it is hard to compare anything. they take five years worth of seasonal numbers. last year's numbers were so weird it is hard to do. tom: i cannot get there. when i hear 700,000 jobs were created -- the vix 26.42. futures up 12. lisa? lisa: two year yields rising to near the highs of the year,
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.631%. i'm curious about michael mckee's idea about health care workers jumping out. -- dropping out. i wonder about the vaccine mandate and how that affected employment backdrops. let us hone in on the federal reserve reaction function on the bond market, which has seen the yield curve flattening persist despite the momentary blip. ira jersey parsing through it all. what was your first take from this report? ira: that headline employment report, that was why we had that knee-jerk reaction where you had five-year notes and the belly part of the curve which is pricing for the federal reserve's terminal rates, they will ultimately hike interest rates. that rally has since come back. some of the things mike mckee and jeffrey rosenberg were talking about, this report was not that bad. if i take an aggregate and look at aggregate labor income, the number of jobs created times the
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amount of hours each employee is working every week times hourly earnings, what you wind up seeing as we are back to the pre-covid friend. -- the pre-covid friend -- the pre-covid trend. a lot of things in the economy have returned back to 2019 levels. that is a reason why i think the market is still thinking the fed is going to taper faster. the market will price for earlier hikes, even than what we are pricing right now. the question for me is will that be realized? there is a lot of uncertainty in the economy with omicron and everything else that maybe the fed might taper faster, they will not hike faster. lisa: you see a conflicting message in the market goading the fed on comp and the flattening yield curve, which
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seems to indicate a policy error. ira: it is weird. i think the chair getting hawkish over last two weeks has changed the market vernacular and what the market is thinking about. the market is thinking that if federal reserve hikes two or three times in 2022, they might only go two or three times after that and then stop. i am convinced that the fed reaction function, and i think you will hear this at the december 15 meeting, the threshold for taper is much different than the threshold for hikes. even if they hike once, remember in 2015 everything was good. they hike once in december, they did not hike for another year. i suspect we might only get one hike every six months for the first year and year and a half and then eventually we will get into a more normal cadence and rates will go up to 2% in the fed funds rate, in which case
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the market is not price for that. tom: i think you are dead on in this. this is so important to understand the taper timeline and the delta of it, the amount of lift is radically different than what we see with the rate story. ira, how do you parse the global wall street we speak to and listen to each and every day where you have one group saying forget about transitory and another group on the edge of mario draghi full and things out like christine lagarde into 2022 and 2023? how do you parse the dichotomy? ira: everyone -- there is this binary camp. it is either you are in the transitory camp in think we will get back to 2.5% inflation induced or three years, which the market is still pricing, or you think inflation will remain higher than it has been. the idea we are going to have
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continued 6% or 7% in patient, i think -- inflation, i think that is very unlikely because a lot of base effects are going on. imagine a world where you are between that. this is the more realistic case for higher inflation. that is you have inflation running at 3.5% because you continue to have wage growth similar to what it is right now. that is the embedded inflation the fed is worried about. if that becomes more factual, which will not know until next year, that is an environment where the federal reserve will probably have to hike much faster than the market is pricing. that is not my basecase, but that is a realistic possibility that the market is fighting against in both directions. tom: ira jersey with us with final thoughts as we move from
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gina martin adams with her equity abilities to ira jersey in fixed income. i love the idea there is a clarity of opinions, and ira jersey goes to the in between of it all. lisa: that is where the fed will try to stay as they try to dovetail the political emphasis on inflation while allowing the employment market to run hot. the takeaway was this was a big headline miss but a big win when you look at the underlying components. you are seeing real's rise. i think the kriti gupta's astute point, good news for the economy. using the nasdaq climb further. that speaks volumes. what the market is implying is that the fed is going to hike rates next year in the economy and markets are strong enough to withstand it. tom: the draw down on all of the angst of this week, i cannot believe it is been a five-day workweek. lisa: not for me. tom: the maximum drawdown of
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-3.4% on the s&p. lisa: it has been volatile but not that significant with the actual moves. how much does this give the fed confidence they can go ahead versus has the market not priced in the idea of a faster rate hike? tom: we will continue the debate forward, including jon ferro's conversation with the secretary of labor. i will call it an ambiguous labor report. certainly a constructive spin from the white house. futures up 18, dow futures up 113. stay with us on radio, on television. this is bloomberg. jonathan: what a fascinating payrolls report. from new york city for our audience worldwide, good morning. your equity market picture looks like this.
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up .4% on the s&p. the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. jonathan: we begin with the big issue. the next stop is december 15. >> jay powell saying it is time for them to exit the market. >> it tells you the fed wants optionality. >> chair powell has shown he is doing what every good central banker does. >> this is powell building in flexibility. >> buying himself a ton of flexibility. >> it is the committee show. >>

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