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tv   Bloomberg Surveillance  Bloomberg  May 6, 2022 8:00am-9:00am EDT

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>> we are still in the zone in terms of rate hikes. we are not on the open highway. >> already priced in a 1994 style hiking cycle in the u.s. >> it's fair to say soft landings are difficult. >> absolutely fundamental for the fed to get a slower labor market. >> inflation is the number one risk for markets. >> it's very hard to say inflation will just proceed. >> this is bloomberg surveillance with tom keene, jonathan ferro, and we. tom: good morning, everyone. jobs day in america on radio and
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television. it is also markets, markets, markets. we have to go to the markets even with jobs 30 minutes away. the bid is not there. jonathan: yesterday, a lot of mayhem. a lot of people got comfortable after the federal reserve meeting, talking about a longer-term narrative, maybe this was an inflection point. the market punish that view. absolutely whipsawed in this market. 29 minutes, we have a payrolls report. median estimate is 380,000. i'm interested in the data, and how do we respond to this incoming information given the market pricing at the moment? tom: what is important is the character of this pullback we have seen, the idea that it is short and sharp. that has changed. some huge bear markets in sectors, individual securities. this is no different than short and sharp. jonathan: lifting the lid on the
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index, going through the numbers that be of a put out this morning. 77% of the nasdaq is already in a bear market. 49% is more than 50% lower from their 52-week eyes. that is a big deal. we have already had a massive correction in some big names in that index. tom: the chart of the morning, deutsche bank showing the difference in business confidence, good, consumer confidence, not. you wonder how that falls into the future of the american labor economy. lisa: when do we start seeing a slowing in overheated labor markets? from an investment standpoint, i love how james athey put it, saying hope is not a strategy. this idea of hope for an end to the inflation is not there, and the fact that the fed did not come into stop that created jitters particularly on the long and. tom: you looked at the carnage
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yesterday across the full faith and credit, high yield. where is the bond market? lisa: there has not been a huge reaction in the bond market, credit market. there has been in the treasury market. when this shoe drops, the fed notices. until that, the resilience of the credit market has allowed them to go further. the fed will not give a put to stocks. they will perhaps respond to credit. tom: what is the key distinction between priya misra and others and the crew out there looking for some real damage to price down yield up? jonathan: it is this simple, how resilient is this economy in the face of higher interest rates? priya misra does not think it is that resilient. they have already seen conditions for the fed to back away. but the fed has not seen the data yet.
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for others, they believe that if you want to get inflation down, you need to get inflation rates much higher. vice chair clara, the former vice chair basically said it, the expeditious moves back to neutral will not get it done. he things we need to get to at least 3.75. tom: many of the fed hocks gather at the hoover institution. our michael mckee is there, with us later with randy quarles. we could take the next 20 minutes and do a data check but the guests are two important. we have to start with an update on pound sterling. jonathan: pretty difficult, had a look at 1.22 earlier, back to 1.23. on the nasdaq, we recover just a bit. down half of 1%. we were down one full percentage .30 minutes ago. yields are higher by five basis
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points. euro-dollar. dollar showing some strength. a couple of ecb officials talking about higher interest rates. this is where it gets tough. tell me what the central bank will do and then tell me what the market will do in response to that. and the bank of england, we have had the rate hikes. is the euro positive or negative if the ecb hikes this summer? tom: below the radar, a smart note on dollar-yen. that will be interesting into the japanese monday. right now, nadia lovell joins us now from ubs. what changed for ubs yesterday? nadia: not much has changed for us. we sort of came into the market expecting value to be better positioned to overgrowth. what we saw yesterday was the magnitude of the move to the downside, a bit surprising, but it was not chaotic, not total
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capitulation. we had some systematic selling, but we did see some selling from risk priority. the retail buyer did step in yesterday and bought individual stocks. that is a good sign. corporate buybacks, we are looking for that to pick up in the next week. i think the message out of the bank of england yesterday, inflation outlook up significantly suggesting some recessionary risks, and that spooked the market yesterday. but you can see some moves in that direction. vix above 30 and the market is sensitive to headlines. we will be watching closely the fed speakers and ppi, which will likely impact markets. jonathan: looking forward to jim bullard later this evening. i would love to get some insight on what the conversations with your clients sound like right now.
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nadia: clients are of course concerned about the volatility in the markets. what we try to do is anchor our clients to longer-term themes, take the opportunity to upgrade their portfolio in this time because we see quality stocks also getting thrown out in this volatile market. we are particularly focused on some of the new themes, having conversations around cybersecurity, energy security, food security. we continue to see food prices move higher. also between energy equities. lisa: how reluctant our clients to go into fossil fuels based on some of the esg mandates that have left so many investors underinvested? that is why some are saying there is more upside for wheel companies and why they are underpriced for where prices are.
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nadia: i think it is a mixed bag on the esg front. clients are also realizing that it will take longer for that energy transition. it is having both exposure to green tech and renewable energy that will eventually benefit from this transition, but you cannot throw out all of the oil companies. they are making some inroads on the esg funds. brent will be sustainable at the 115 range. yesterday we saw headlines around the u.s. government looking to refill the strategic petroleum reserve. so we think the energy equities will remain very attractive at these levels. they are more in the mid $70 range. lisa: you still have a call for
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the s&p at 4700. what will drive that? what will move people to buy the dip and then some? nadia: you had to see the inflation data abate. we expect inflation to start to moderate. next week sprint will remain elevated. we are looking for 8.25 percent next week, and then a trend toward four point 5% by the end of the year. once we see that, that will allow the fed to not be as aggressive. the fed has already telegraphed if the basis points for the next couple meetings. we are in agreement with that and we think a return to 25 basis point cadence after that. i think if the fed can navigate this very narrow path and get us to a softer landing, and there is evidence of that, you could see equity markets move higher. there wont be questions around
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earnings growth for 2022, 2023. jonathan: thank you. nadia lovell of ubs wealth management. in 20 minutes time, the payroll report. the estimate is 380,000. how wide is the range? 517 is the highest estimate. 250 is the low. jp morgan, 475. goldman, 300k. we citi earlier, he said 360. he is setting his clients up to expect a deceleration in payrolls growth, not because of demand, but because they cannot find the supply to meet it. lisa: that is why perhaps the more interesting number will not be the headline number but the wage number. if you see continued acceleration in that number, then you start entering the danger zone into hard landing. at what point does the headline number not matter anymore? jonathan: are you suggesting we
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might be? lisa: if it is a week number, that made me more about the supply that the demand. the high number, it will lead to the same questions. tom: we are supposed to be in london in 25 days. team surveillance has been doing some research. this is on cindy. the british indian version of vindaloo calls for the meat to be marinated in vinegar, sugar, more spices, and that more spices are added. british bangladeshi restaurants in the 1970's. jonathan: i will take you. that is a little bit more you. futures, negative a third on the s&p. payrolls report 19 minutes away. ♪ ritika: keeping you up to date
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with news from around the world, let's get to first word news. i'm ritika gupta. less than 24 minutes away from the u.s. jobs report. concerned that it will show that the federal reserve needs to be more aggressive with rate hikes to contain inflation. the report is likely to show the on employment rate dropping to 3.5% while wages rose 5.5% over the last year. the eu had proposed a revision to its russian oil bad to give countries more time to comply. hungary and slovakia would get an extra year until the end of 2024.global news 24 hours a day, until june of that year. all other countries will stop importing by the end of the year. boris johnson appears to have awarded disaster that may have triggered another attempt by members of his party to replace him. china has ordered government agencies and state run companies to get rid of their foreign-made
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personal computers. it is one of their most aggressive efforts to get rid of overseas technology. the move could mean 50 million foreign pcs being dumped. the company is also being hurt by pandemic related shutdowns in china. sales were down 14% in the quarter. 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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>> employment is strong, consumer activity is strong, consumer balance sheets are strong. it is not a situation that calls for an emergency type of move, and i think he very clearly took 75 basis points off the table. jonathan: dennis lockhart, the former atlanta fed president david 12 minutes away from the payrolls report in the united states of america. in the equity market on the s&p, down a third of 1%. session those on the nasdaq 100. yields higher going into this
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one by four basis points. 3.08%. the euro showing a little bit of strength after showing weakness yesterday. 1.0568. some of the estimates out there, 380,000 is the payrolls estimate in our survey. unemployment, 3.5, down from 3.6. tom: some huge dynamics, the state of the labor economy this far along in a wonderful recovery from a pandemic. our jobs are and 11 minutes. the university of chicago booth school, professor of economics, randall kroszner joins us. i want to go alan greenspan on you. chairman greenspan really cared about confidence. george at deutsche bank points out that business confidence and consumer confidence have never been farther apart. how do you believe that dynamic will work? will business confidence go
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gloomy as consumer confidence does? randall: i think that's right. just put all the issues with the fed aside, raising rates quite significantly. there are so many shocks out there whether on the supply side, sanctions, war, continuing uncertainty about that. naturally the economy would be slowing down. plus, the fed has to be ruse -- moving rates to bring in inflation. that is a pretty tough one-two punch. jonathan: how should we interpret the payrolls this morning? trying to understand what will matter in this ultimately to the fed rate path. for the summer, they seem to have taken everything off the table, 50, 50, and in august reassess. nadia: i don't think -- randall: i don't think the jobs report will be enough to move them off of that. the labor market is strong but i
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think it will start to weaken. that is why the fed has to act sooner rather than later. with unemployment below 4%, you can raise rates without getting too much political pressure. once the unemployment rate gets to 5%, it will be more difficult to move. that is why they have to move the 50 basis points each meeting. lisa: would you have liked to see 70 five basis points on the table? randall: we will have to see how inflation evolves. i'm not sure i would want it off the table. i think the chairman has taken it off the table. but i think 50 basis points at the next few meetings, that will be getting interest rates up to a reasonable level. 3% range. jonathan: why did you say they would come under political pressure, why does that matter for a federal reserve that is meant to be independent? randall: central bank are supposed to be independent, and the federal reserve is formally independent, but congress can always change the federal reserve act.
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congress can always tell it to do something. look what happened during the initial response to the pandemic. they gave resources to the treasury to tell the fed to lend in certain areas. could something like that happen again? i don't think it is inconceivable. that is why the fed needs to move quickly, both on the economic side, because they have to make sure inflation expectations don't get out of control, and they have to worry about political pressures. jonathan: this is important. are you saying an independent central bank cannot do what it is meant to do, because if it does it will not be an independent central bank? aren't we questioning the independence of the central bank anyway? randall: in a democracy, the so-called independent institutions have to be accounted for in some way or another. it is not like the central bank is something that can do whatever it wants to do and is unaccountable. it has to take into account the
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consequences of its actions, has to be able to explain what it is doing, why it is doing it. if it does that clearly, that it was able to do what it needed to do. it also take into account the political pressures that are there. lisa: just a follow on to what john was saying, talking about former vice chair quarles, talking about why chair powell did not raise rates earlier was because of political pressure, as he had not been reconfirmed. should it have been politically motivated for that not to raise earlier, which will have an effect on the economy? randall: if you look around the world, everyone waited too long. 20/20 hindsight. the bank of england started a little bit earlier in december. hard to say that it was specific political pressure in the u.s. the ecb has been slow to the table. many other central banks have been slow.
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tom: professor krasner, -- krosz ner, you are in london, which means you have to be social to advance the mission of the booth school. how is important is it to be in eastern indian restaurants eating vindaloo? is this on the agenda for the booth school in london? randall: it is very important, we have an international set of students. being able to enjoy vindaloo with our students and alums is one of the great pleasures of being in london. jonathan: i am just hearing a face plant into the microphone for the people that cannot see us. looking forward to your response to the jobs report. tom: we have not said enough about what they have accomplished. this has been hugely successful for booth school. a lot of schools go down in flames on this. jonathan: please that you have
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brought that up in your unique way. mike mckee will break down the numbers for us. then we will get reaction from randy and then jeff rosenberg. brilliant, going through the things that matter, that don't matter, and maybe some of the errors that he thought the fed had made. tom: what will wait dynamics be in this report? we are making jokes but this is serious stuff. what will the wage dynamics be? jonathan: lisa talked about it, deutsche bank highlighted it. two available jobs open for every unemployed person in this country right now. tom: as we saw with bank of england yesterday, this is original where we are right now. jonathan: going into the futures , -.4% on the s&p. the nasdaq down .6%. we trim some of that move a little bit. 3.06 percent on the u.s. 10
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year. crude just short of 110. up a little more than 1%. payrolls are up next. the estimate is 380k. that number is just around the corner.
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jonathan: live from new york city on tv and radio, this is bloomberg surveillance. your payroll support is seconds away. futures down a third of 1% on the s&p. on the nasdaq down half of 1%. yields higher by two basis points, 3.05. the estimate is 380,000 for the month of april. the headline number four unemployment is 3.5%. mike mckee, this one is just a little bit delayed. mike: it is. i was just bragging about how the bureau of labor statistics gets their numbers out quickly. it may be because so many people are looking for this. unemployment coming in at 3.6%, unchanged from last month. we anticipated it would fall to 3.5%. average hourly earnings a little
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bit less than economists had forecast. .3% rise, which puts us at 5.5% for the annual rate. that is down a tick from the prior month. the one number that has not come across yet is the total number of people who have been hired this month. 428,000 is the number, so better than forecast. the forecast was 380. 428 is also the prior month, so no change in the total number. this makes the 12th straight month in which we have seen job gains of over 400,000. the change in private payrolls, 400-6000. manufacturing, 55. very strong numbers for manufacturing as companies start to reopen, start to get people back into the labor forces as they ramp up production. the revisions subtract 39,000.
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i don't have the exact breakdown but it looks like we lose 39,000 jobs from the prior month. the change from march, down by 3000. the change to february down by 36,000. labor force still in good shape at this point, still seeing a lot of jobs created. the average work week unchanged at 34.6 hours. looking quickly at some of the numbers in terms of the payroll employment, leisure and hospitality up 78,000. i don't know if there is a category for indian food, tom. eating and drinking places up by 44,000. nondurable goods, 24,000. transportation and warehousing, 52,000. that has been interesting to follow because of the way that we buy things.
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it looks at this point a pretty good report. sort of supports the case of jay powell is making this week that the fed has room to try and raise interest rates without sending us right into recession. jonathan: mike mckee, looking forward to your coverage today. let's get to reaction in the market. initially, we got a pop higher in the equity market, then we started to fade again. nasdaq futures down .2%. looking at yields, the front and came in a little bit as the data points started to come out. we are up a basis point on the two-year. that is the story for equities and bonds. i want to go back to randall kroszner from the university of chicago booth school. your reaction to the payroll support, and what happened with participation, the rate coming in a lot more than expected? randall: i think the job market
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numbers are basically along the lines of what people expected, what the fed expected. the job market has been characterized as very strong. i think you said that the labor force participation rate is starting to tick up further -- jonathan: coming down to 62.2. the previous number was 62.4. we thought it would come back to 62.5. bit of a downside surprise on participation. what is your read on that? randall: it has been bouncing around a bit, coming back, but still bouncing around. a lot of people saying i'm not sure if i want to be in the job market right now, both because i have a lot of stock in savings, so i don't need to be working, and because i'm still concerned about those variants spreading around. that will be a continuing constraint on growth.
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you will not see as much labor force participation. that will continue wage pressure. jonathan: randy, thank you. the headline number, 428, the estimate, 380 k. wages come in a lot bit lighter, month on month. participation coming in more than expected. we were looking for a rise, we got a fall. looking for a drop to 3.5%, stayed at 3.6. no major changes, t.k. no major changes in this equity market with the exception of maybe the nasdaq, which 1%, now is unchanged. jonathan: -- tom: we have to stop the show here and make clear the phenomenal job that michael mckee does. but i hate, hate this new release of unemployment data. it is clumsy, faked the market
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out here. what they invented, three years ago, terrible. jonathan: we used to have a lock up, they would release it when it needed to be released. tom: you won't bring it up with secretary walsh and somebody other issues, but they have to fix this. the way it is released now is problematic. never problematic, jeffrey rosenberg. he joins us on the show again. to me, it is a massive continuum, a movement forward of the american labor economy. does that surprise you? jeffrey: no, this is a strong labor market. the labor market is parsing the very strong deviations versus expectations. jonathan highlighted it. the participation rate is a
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little bit disappointing, as randy laid out. i think that could be chalked up to the search we are seeing in the omicron ba.2 variant, some of the impacts. on the other side is the disappointment on the aag figures. .31 month over month, year over year alone a bit more. that helps to offset. this is a little bit splitting hairs, but where we are focused on is the expectation is that healing on the supply side of labor markets will help to bring the pressure down on wage inflation. this report doesn't really clarify which way that goes. last i looked, it was a mild market reaction. the story remains the same, very strong labor market, uncertainty as to whether or not we will see the pressure, on wages by more supply.
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jonathan, you mentioned, you cannot say this is a strong, ringing endorsement on the view that the supply side will come and ride to the rescue of wage inflation pressures. lisa: i find this report on the margins confusing. a beat in the overall numbers which suggests people are coming in, but you have a decline of participation. it is a bit confusing. at what point can we say does the data matter in terms of giving the fed some sort of conviction in either moving faster, faster or longer, or pulling back? jeffrey: it is that wage piece. we are not really getting a material slowdown yet in the wages, and most importantly, as powell said two days ago, one month is not going to be that definitive change. it will be the trend in that wage inflation. right now, we are coming off of a very strong eci print, aag
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rate is not materially decelerating. you can argue there is some deceleration in one month. but it will be that sequence of reports, lots of different reports that we track to labor markets, from survey data to atlanta wage tracker, eci, monthly labor reports. they all have to point in the same direction, that we are seeing the heat, off the labor markets. that will give the fed confidence that what powell said two days ago is correct, which many people may have disagreed with. where are we with respect to the wage price spiral? his view was no need to worry. a lot of other pieces of information saying we might be right in the middle of that. the wage figures will be really center on that. not much new that we can take away. maybe a little bit on the margins, but it's a pretty mixed report. jonathan: another big range in
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the equity market, the nasdaq 100 up .2%. already this morning a pretty big range on nasdaq 100 futures. hello was a little more than one hour ago. big turnaround. i'll be going through the bond market and what all this means. i will be catching up with anastasia amoroso, mohamed el-erian after the bell. and then we get the view from the white house. secretary walsh coming up in the next hour. tom: three-month moving average on nonfarm payrolls, 535,000. jeff rosenberg, let me ask you a really dumb question. the public will want to go, what is wrong with generating 535,000 jobs per month over 90 days? why are people lathered up at the sterling job formation?
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jeffrey: it's a great question. go back to what powell said wednesday, and it was the most important take away. what they are trying to say is inflation is the most important objective, if you add financial stability, to the three objectives. he said you cannot have the benefits of broad-based and inclusive labor markets without price stability. price stability is necessary for the benefits of that labor market growth. if we are generating too much dog wrote, --job growth, generating too much inflation, real wages are falling. yes, there is strength in the labor market, but isn't keeping up with inflation and that means real incomes are falling. when you look at consumer
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confidence, small business confidence, the confidence numbers are falling, small business is exceptionally low because of the impact of this inflation. they will preference fighting inflation over the job market. he said they can do both, they can find the path, they will not be a recession, plenty of forth they can take out without raising unemployment. we will see if that is the case. a lot of former fed officials saying that is not the case and they will actually have to tighten into restrictive territory. but it is because inflation is the most important priority right now. lisa: after yesterday, there was this what song in markets. some are saying, is it time to buy the dip? i know that you been cautious. i wonder if you are more or less cautious after the price action, willingness that people have to take the message on inflation away from the
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look back at wednesday and thursday, what happened? lots of people come up with explanations. what happened was massive uncertainty reflected in huge swings in financial markets. the take away is this is a reflection of the significant point we are with respect to uncertainty around policy and economic and financial implications of that policy tightening. i guess it makes me reaffirm our more cautious of you that that swing in financial markets is validating that. this will be a very tough environment. until we get through the clarity around what is that path of inflation, how tight the fed has to get. when we are in that uncertainty period, you have to expect that that is reflected in higher volatility, more conservatism in
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your portfolio. tom: i want to note the improvement in the tape after the child support. -- jobs report. dow futures down 25. the vix now up .71. even the young cooperating here a little bit. so there is a market adjustment this morning. i need to go to michael mckee, who is in the most important place in the world today. palo alto, stanford university, and the hoover institution. the hawks have assembled and said, hoover institution, a lot of speakers today. this is a job support that entrenches the bullard view of let's get going, doesn't it?
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mike: certainly makes the case on both sides that the chairman and jim bullard have been making. we lose 360,000 people from the labor force, which is sort of the batteries in the unemployment rate was unchanged. construction jobs, only 2000 added. that may be an early sign that we are sort of running out of workers, which would push wages up. you saw the average hourly earnings, and that may be a composition affect, but they came in lower than expected. on the one hand you have jay powell's argument that the labor market is strong and we have time, and then you have jim bullard's argument that we are still seeing wage pressures over 5% and this will not be good in the long run for the economy. tom: michael mckee early in the morning in palo alto.
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hayes incredibly important interview this afternoon with randal quarles, controversy with the former vice chairman. right now we are bringing in ira jersey with the dollar a little bit weaker, looking at the bond market, short-term space as well. this is a confidence building job report. 400,000, 500,000 three-month moving average. this is a job forming economy. what does the yield market say about that? ira: treasury yields are certainly in a situation where they think the economy is pretty good, will stay reasonably robust. some of the details of this data would you been talking about with mike mckee, as well as mr. rosenberg, shows that maybe some momentum in some of these figures is rolling over a bit. hours worked down a little bit, something that could ultimately be important.
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maybe you are working less hours because you are making more money than you were. the bond market, right now, especially with the recent steepening of the yield curve, shows that the market things that you are going to have a reasonably good economy over the coming months. lisa: does the bond market imply that the fed does not realize the urgency with which they have to raise rates? i say this because we have seen a steepening in the yield curve, as you mentioned, the long end doing a lot of work for the fed that the fed is perhaps not doing right now. ira: the yield curve has done nothing except flatten almost all year in anticipation of a relatively hawkish fed. some of the recent steepening of the curve is just an acknowledgment that maybe the federal reserve is not going to go as quickly as the market was anticipating. i don't think the markets interpretation of what chair powell said is sincerely correct. even though the fed is not going
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to hike 75 basis points in june -- that was completely squashed -- that does not preclude them from doing multiple 50 basis point hikes for the rest of the year. what if we start pricing in 50 basis point in september and november? now you have a significantly flatter yield curve because the market will have to adjust to that eventuality. but we made a price for that until we have more data, and then maybe in june you get more hawkish statement from members of the fed saying 50 basis is the new 25. we are just going to go 50 at every meeting until inflation is squashed. lisa: we have seen volatility in rates, and unusual to see this amount of volatility over the past 20 years. and he on positioning of how are we are from some stability in rates? ira: i think our view of yield flattening is more or less the consensus. what you have seen is certainly an unwind out a lot of flat
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trades. liquidity in the market right now is poor. dealers are not really willing to intermediate without having wide bid offers, being able to lay off the risks that they would have to take. the treasury market is significantly bigger than it was. with the federal reserve now out of the market, not buying in the open market -- before, the federal reserve was willing to take bonds at basically any price that the dealer community wanted to give them. liquidity is bad. you are going to see these 10 basis point moves every day more frequently than you had at any time when the fed was in the market. tom: not that this is a gossip show, but let's go there as everyone regroups, thinks about the data this weekend. what is the carnage out there if we go 10bps this way, 10 bps
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that way? who sees portfolio values decrease? is there somebody out there right now making a fortune? ira: in the not-too-distant past, you were paid for selling volatility. people would sell three-month options on 10 year rates, clip a coupon by selling that volatility. a lot of those people who were doing that are much less inclined to sell that volatility. volatility. it is one of the reasons why you see over 30 right now. that is implying that we will have significant amounts of volatility for maybe longer than most people thought. the uncertainty around the fed's policy path is contribute into that outlook that volatility will remain high both
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on i realized basis and implied. tom: i look at the next step here. what do you write about this weekend? this report is a massive continuum of what we have seen over 60 days. what are you going to write about this weekend? ira: next week we have a pretty big report of where we see the fundamentals now that the fed is out of the way. tom: give us a head start, nobody is watching. ira: we are trying to determine, where our 10 year yield be? now that we are solidly above 3% for the first time since 2018, are we going to hit three .26 and then go beyond that? that was the 2018 yield high. are we going to see 3.99% which was the june 2009 hi on the 10 year, the highest we have seen in the last 14 years? or are we going to have, as was our base case prior to the fed
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meeting? until such time as the fed completely squashes inflation and then maybe we rally back a bit in the next recession. tom: ira jersey driving the price higher, the yield lower. the 10-year yield, 3.09%. joining us on the equity markets is michael casper, working with gina martin adams at bloomberg intelligence. what is the theme? michael: we were watching the average hourly numbers number. it is a big factor in industrial, tech weakness. those companies have the highest revenue per employee, need to gain the most revenue per employee to make ends meet. their margins have been under pressure. tom: when did you see here at 8:30? michael: it was pretty much right on expectations, average
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hourly earnings number. it doesn't change the narrative much in the market. stocks should have a prolonged period of weakness given the market pressures they are facing. tom: lisa can ask you a question. he is so gloomy. lisa: to give you a sense of what the numbers were, i find this interesting. the headline number was a beat, 428 thousand versus the expectation for 380,000. unemployment came higher than expected, staying the same at 3.6%. labor force participation actually went down. this is surprising. people expect more people to get into the labor force. you are not getting conviction as to whether the higher wages are bringing more people into the labor force. in the bond market, the 10-year yield now climbing to session highs, near 3.10%, as people say maybe this justifies the fed not going fast enough in the short term because it is not a
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screaming alarm bell in terms of the inflation and acceleration. michael, how much have we priced into the equity market, big tech in particular, when it comes to the rate increases? have we priced in that the fed will raise rates read times, 50 basis points, and then wait? or is the equity market more concerned about that? michael: there has been a significant amount of pricing, down more than 10% on the s&p 500. looking at the fair value model can be a really good guide here. if the two-year gets to 3%, hovering near their, the justified p/e for the s&p 500 should be about 14 times. there could be more to go if rates continue to rise and yields continue to rise. if the fed keeps hiking rates, that's a possibility. tom: this is a weekend when everyone is trying to recalibrate. your statistic of a price-earnings ratio of 14, i
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would say that is uncommonly low versus many other ratios we hear. how are you getting to a fair value of 14? what is the distinction of 14 versus 16? michael: that again requires the right picture to move in the right direction. you need a two-year to get to 2%. 2/10s spread to widen from here. you need to earnings growth to come in particularly weak. companies will be struggling with that over the next couple of years. you need a low bit more bearish sentiment to filter through the markets. lisa: for a lot of the pandemic era, traders for an incoming bidding up the stocks that have been crushed over the past six months, how much have they exited versus trying to come in and by? does the retail trader really matter in the way that people said they mattered during the height of the pandemic?
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michael: i will put my small-cap hat on right now. it seems like the retail investors are fleeing a little bit. in particular, i've been watching the meme stocks, amc, gamestop. they have been facing an extreme period of weakness here. i think that is all part of the retail weakness here. tom: we have not covered the memes since time began, but what that speaks to is profit companies versus less profit companies. is that the key distinction moving forward? michael: certainly. in small caps, profitable companies are performing less profitable companies. within the indices. same thing with low vol. you want to be in low vol stocks, low earnings stocks. tom: one last question. the major thing lisa and i saw this week were stunning
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predictions on the price of energy, oil and natural gas. are you going to write this weekend about hydrocarbons? michael: probably not. tom: probably not? that is not the right answer. you are supposed to say yes. michael: energy is only 2% of the s&p 500. tom: you have to understand, casper got into union college. all you have to do is spell schenectady. lisa: michael casper, thank you so much. honestly, you asked him, are you going to be reporting on hydrocarbons? he just gave an exhausted sigh which speaks for all of us, this has been an exhausting year. tom: look at what j.p. morgan said about a clearing of the china lockdown. boom. demand comes back. lisa: that has been a huge theme this year, the one place that people have hidden is in the oil stocks. maybe it gets to be a bigger part of the index.
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i think it has a bigger economic implication when you talk about oil and gas and equity implications because that has already been an area of incredible interest but on a broader sense does that take away from the prophets and earnings on the other side? stuart keiser summed it up, this exhaustion. please reach out if you want to vent. that was in his comments this morning. tom: there is a lot of that going on. this is the dow, which i know is not indicative, but away from the carnage of the nasdaq, tech and the rest, we are sort of like correction. but it has been the slow-motion nature of it. we are not used to that. we are use to down, pandemic, biden saves the day. lisa: wonderful point. you said it fantastically, and even conceded that the dow may not be representative which i know that jon will play on
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repeat. this has more of a 2002 feel to it, rather than the dip and buy we have seen over the past couple of decades. tom: we have a team of 42 people that work constantly to be sure we have the right voices here on radio and television. lisa, they go back to back, fed day, and then today, after the market tumult. lisa: we owe our team a lot. tom: let's not go overboard. mcdonald's after the show. futures, -26. stay with us. the secretary, next. ♪ jonathan: this equity market is a mess. from new york city, good morning. equities down, equities up.
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countdown to the open starts now. >> this is bloomberg the open with jonathan ferro. jonathan: live from new york, we begin with the u.s. payrolls report and a messy equity market. joining us is mike mckee with more. hey. michael: good morning. the message from this payrolls report is if you like the march number, you will like the april number, because nothing changed. if i had a nickel for every time they said little changed, i would be a wealthy man. 428,000 jobs restored in april, exactly the same as in march, even after revisions.

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