Yields are still high relatively. The bloomberg dollar index continues to come down from the high for the year days ago. 12. 71 the level. Nymex crude has entered correction territory. Down maybe 10 this week alone. Nymex crude trading at 82. 72. Jon we are watching the oil story in canada and the currency story as well. We have seen the Canadian Dollar stronger. A lot of people were thinking the bank of canada has got to continue to navigate the inflation challenge given resiliency in the canadian job market. Smaller economy, but still, the nearly 64,000 jobs created in september was triple what the economists who track these data points were expecting. The Unemployment Rate held steady, 5. 5 . But the wage growth story and we talk about these labor challenges across north america yearoveryear, you saw an increase of over 5 . The inflationary effects are things central bankers are watching closely. Matt yes. Really fascinating beats in canada and the u. S. I mentioned the september jobs report was a blowout. Mohamed elerian says investors should be prepared for pain ahead. Mohamed this is an economy that got used to ridiculously low interest rates. The change in the regime is happening really fast. So, something is likely to break. Probably in the Financial Markets but that will have spill back into the economy. Jon ok. As investors navigate all the chatter lets bring in liz mccormick. You have been writing pretty extensively about the money flows we are seeing, particularly in money market funds with investors trying to guess where we go from here. Liz yeah. It is amazing the money keeps plowing in. We got the latest data yesterday. 5. 7 trillion going into money markets. People continually feel like i am getting paid great yield to sit in safety. Although, if you look at the broader yield curve you see a resteepening. We are hearing favoring the twoyear and threeyear. But there is a lot of money in money market funds. Matt this mornings price action made sense to me. If you get a big blowout jobs number, we were looking for 170,000 and we got 336,000. You might be right to think the fed needs to raise rates and that is why the market fell, the stock market. Why do you think risk assets have turned around and rallied higher . Liz it is interesting. This happens when we get these very involved reports. Without a doubt the headline numbers were blowout. But then you start seeing jp morgan saying the household figures were much less boomy. We saw some civility in the average work week. People started to look under the hood and i saw several people say, yeah, this definitely increased the chances of a hike by the fed in november. But cpi next week, if that is higher, that is going to be the linchpin to get the last hike that the dot plot has been predicting. The market is digesting. The economy is good, earnings are not bad, and maybe we can deal with this 5 yield. But i think for the bond market even though rates have come off the highs of the day it creates a backdrop of the fed is not going to be pivoting anytime soon to cuts. They moved further out today. They are priced in for next year but in september. I think that higher for longer thing is going to hover around, but the stock market is seeing the goldilocks side for the moment. Jon do we have a sense everybody keeps talking about given the level of yields may be part of the feds job is done given the mood in the bond market. How close are you going to be watching where yields sit for the coming weeks until we get that ultimate decision on rates by the fed . Liz great point. Mary daly was speaking to that point. Maybe these higher rates, you know, may, among other factors, do some of the feds work. But the long end the fed cannot control it. Like Mohamed Elerian was saying, the risk is that things unmoor and something breaks. We see other banks fail. I have seen a lot of folks say the long end, you know, especially with the curve steepening, has gone up. Maybe thats what the fed wants. But i think there is so much more risk. That is why you see people say maybe i do not want to buy 10year or 30year bonds. The list goes on. But i think that is what the fed wants. They are not talking down the market but there is a limit. I dont know what the number is but we will see. Matt you would not think anyone wants to buy the long end, and yet, the inflows to tlt continues. Weeks of positive inflows. Liz mccormick talking about bonds. Thanks for that. Lets discuss with s ps global chief economist Paul Gruenwald. Thank you for coming in. What do you make of the labor market after this jobs number . Not only was it a huge beat in the u. S. But triple across canada. Paul we have been watching this movie play out all year. We keep expecting the market to slow down because the fed and other banks are raising rates. We keep getting these strong numbers. As your colleagues describe, it was not necessarily all that. We got lower wage growth and pocket of softness. But this points to the fact the fed maybe the market will do the work of the fed. But the november rate hike is not off the table. Matt the fed is working across purposes. As they try to tighten financial conditions, the u. S. Government hands out more money, blowing up bigger deficits. Hsbc today said they were wrong on the bond market. I will quote directly from the story. Normally, i do not think deficits matter. Do they matter . Paul you have got the fed trying to tighten and pull back demand and you have the fiscal authorities pumping demand into the economy. That makes the feds job harder. They are trying to slow the economy down and the treasury is doing opposite. It is going to make everything more difficult. But there has been a wakeup call over the last month at the long end. You have a large fiscal deficit. You have investment around Energy Transition and the renaissance of manufacturing. And you have the fed rolling off its portfolio with qt. You put that together and you are going to get pressure on the long end and i think that is what we are seeing. Jon the Bloomberg IntelligenceEconomics Team was trying to make the point when you look under the hood at the state of the jobs market, you can find some cracks. Arguably, looking at september versus where we were early in october, that the picture is changing. Liz was talking about the inflation readings next week. If you are trying to determine the feds next move, are you looking at todays jobs report . Are you looking at next weeks Inflation Report . Paul you are looking at both. The fed said they paid more attention to the measure of inflation, you know, the one last week which showed 3. 9. But we think of the labor market staying reasonably strong. The fed can squeeze demand out gradually and that will generate this soft landing. But if the labor market is too strong which is what we saw today the fed is going to have to do more rates go higher, and we raise the probability of a sharp or slow down. We are in that zone where it is not clear yet. We were ok with everything pointing the right way toward a slow down, but todays labor market is going to change the calculus. Jon just to clarify, for your own current forecast for where the economy goes from here, what are your expectations . Paul we are in the maybe camp for the fed. After this morning we are in the strong maybe camp for one more hike. The atlanta fed is tracking about 5 for q3. But we think the tightening is going to work through ondemand and we have got to slow down below potential of 2 into next year. We have been saying that for a number of quarters. Matt we have a story on the terminal, never session and yet companies are teetering. We are seeing bankruptcies take off. On the consumer level, they are putting more on credit cards. Delinquencies are rising. Delinquencies on auto loans are rising. Student loans are about to kick in. Are we going to see a soft landing or does this economy fall into a recession . Paul there is going to be pain on higher rates. The idea is to tighten financial conditions and slow down. Our credit guys are expecting some default buts it is still in the moderate zone. I think it is the key of the job market. If people start losing employment, you are going to see delinquencies rise. Given where we are in the cycle and what needs to happen over the next 24 months, i think we are comfortable where it is now. But early days. We are just starting deceleration. Soft landing does not happen in two quarters. This is going to be a protracted slow down over a longer period. Matt we saw the speaker of the house basically ejected for making a bipartisan deal over the weekend. The devil you know may be better than the devil you dont. Do we have another Government Shutdown and does that worry you . Does the u. S. Government continue to meet obligations . Paul the u. S. Has this weird system. I think we are the only country in the world where you separate the spending from the financial decisions. We had not seen a speaker get booted out before. But it is more of a focus on the longterm debt trajectory. Given where we are in the cycle the fiscal deficit is high. What we are hoping is the congress can get together and put together some sort of plan where we have a declining debt to gdp ratio. I think that is what we are looking for. But again, all of this drama in washington is not helping that outcome. Matt great having you here. Paul my pleasure. Matt s p global chief economist Paul Gruenwald talking about the jobs number, the rates situation, and the u. S. Government. Coming up, exxon possibly on the verge of making the biggest deal the century. We will talk to Stephen Schork, next. This is bloomberg. Jon this is bloomberg markets. Im Jon Erlichman with matt miller. Time for the stock of the hour. We have been tracking the industry sector, specifically exxon. Nearing the largest take in over two decades as they seek to become the dominant u. S. Producer of shale oil. The company in talks to acquire pioneer natural resources. We have increasingly seen the super majors playing catchup to an area, a decade ago, they were clearly not as interested in. If this deal comes together, it cements that interest. Matt it looks like the majors were not as interested. Pioneer was and now they look like they were in the right place at the right time. Lets talk to Stephen Schork about this, cofounder and editor of the schork report. This is, in shale, pioneer is it. If exxon gets this deal done, how positive do you think it will be in terms of could to beating to contributing to earnings . Stephen it is the right way to go in this contentious political environment. Instead of trying to hit home runs with these mega projects of offshore drilling or drilling into unproven ground, by going after the shale patch, you have access to quick returns. These wells are prolific when you tap into them. You get a lot of oil really quickly to the market, therefore, you get return quickly. And then they die off. The acquisition by exxon will more than double exxons position in the field. It will give them access to the most fertile oilproducing region in north america. And it certainly gives them a low cost strategy to access supplies as opposed to waiting for long projects, such as going deeper into the ocean. Matt what has happened in oil . Right now, we are looking at nymex crude trading for 82. 56 a barrel. Last week somebody bought a barrel for 95. 03. Why the huge turnaround down . Stephen if they liked buying it at 95, i am sure they liked buying it at 82. [laughter] last week was the final week of the third quarter. You had a significant run up in price. A little windowdressing, as it were, going into the end of the month. We are coming into this month and you are having that correction, that pullback, in price. I do think we did overshoot the market last week. Now we are in that correction phase. We have had a significant selloff. It just goes to tell you, or to show you, how volatile the market can be. I also want to point out that when we are looking at the forward curve, we are in a situation called backwardation. When we look at oil prices on a monthly basis, december is higher than january and so forth. That is a telltale that the market is undersupplied relative to where demand is. We are still looking at a dynamic demand is at its weakest. Refineries are shuttered temporarily to perform maintenance. But once demand comes back in november and we are looking at a lone supply relative to demand, you have the table set for higher prices to the end of the year into next year. Jon beyond looking at the prices in the market, a lot of people are looking at the financials for these Energy Companies and in exxons case, if you look at the Free Cash Flow and how things changed last year, the door really opened for the possibility, arguably, to think about these bigger deals. Even though they are always interested. Assuming this deal comes together, would you anticipate because the state of affairs and the Balance Sheet in the Energy Sectors has improved that there could be more activity ahead . Stephen i think there is. The biggest threat facing fossil fuel producers is access to capital. Some of my larger clients, they are fine. This cash flow is helping. They will continue to grow. The problem is going to be with smaller producers. They have been told by their banks, hey, you are good. We have got you back the next couple of years, but five years out, we are not going to be there for you. You are going to see further consolidation as the behemoths buy smaller producers that will be starved of capital. We are looking at a much smaller pool of large producers the next five years. Jon briefly, i know you are not a d. C. Expert per se, but i wonder what the white house reaction might be to a deal like this . Stephen judging by the record i have to imagine it is going to be contentious. I think they might try to throw up some roadblocks going into an election year. This is a white house that, frankly, the president has been to riyadh. His top people have been to venezuela. He is asking them to increase production. The gentleman has yet to step into the city of houston to ask domestic producers to step up. We are at a situation where we are expressing ourselves to pariahs and shunning our own people. I think a deal like this is a slap in the face, or they will receive it as such, and they are not going to react well. Jon fascinating. Always appreciate the insight. Thank you for the time. Stephen schork, editor of the schork report. We will keep tabs on that front. Coming up, why investors are turning away from the electric vehicle player lucid. This is bloomberg. Is it possible to fall in love with your home. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. Curated by joanna gaines. Jon this is bloomberg markets. Im Jon Erlichman alongside matt miller. Time for what its worth. How about 338,000 . Electric carmaker lucid is set to burn 338,000 for every vehicle it makes. Analyst Sales Estimates for the company have come down nearly 50 over the last six months. We have been watching the stock under pressure get into an alltime low this week. Introducing lowerpriced versions of high end vehicles. I think he gives people a bit of uncertainty about whether that is done to grab market share or because demand is waning. Matt i think there is a real question about demand right now for electric vehicles in general. Lucid may be a different story because they are expensive. The amount they lose per car is shocking. But you have seen today tesla lower prices again, which brings into question how much people really want evs. Or how much the ev market has been saturated. Early adopters have gone their cars already and for regular people, it may not be the first choice. I got an email this morning from hretz saying if i rent an ev, they will give me one free day now and one free day later. Makes me think they are not renting out as many as they would like to. At 2 00, we will hear from uaw president shawn fain for an update on the strike against ford, gm, and stellantis. This has become a friday tradition. Definitely stay tuned for that decision because used car prices continue to climb. Inventory continues to drop. And workers, many of them, are still on strike. For Jon Erlichman, im matt miller. 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Equity market and we have switched from losses to gains. The s p 500 absolutely soaring, up 1. 2 . More dramatic if you look at the big tech names are the nasdaq 100 up 1. 6 even though the bond market has held its losses after that blowout jobs report we got this morni