Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170505

At brown university. Finally, we will get consumer data info for march. Jonathan im not sure the fed chair is going to make any news today. She is speaking at brown university. 125 yearsmemorating at brown. Speaking, you is have to listen. Jonathan on this occasion, maybe not. Lets get to the top stories. Payroll is out at 8 30 a. M. 4. 6 will be a Unemployment Rate. Chiefg us is our economist. Although with this is ethan sheis lets pretend delivers the speech and she looks at two things, the payroll report and what is happening. What will be the biggest concern . Ethan its the job market. Weve had the slowdown in the fed has been saying no big deal. We are not concerned about it. That keeps june it very much alive area if we have twoweek job reports in a row, we start to worry. I think its a very close call. If this continues, i think they skip. If we get a pick up in data, i think they hike. Jonathan how much lower would it have to be to take june off the table . Would get two more jobs reports ahead of that meeting. If we are coming in at 100,000 or less, that rings doubt. David what are we looking for . We keep hitting lower and level lowers of unemployment. I think that means we need to once again assess the level of full employment in the economy, presumably that is in the mid 4 range. I dont think we are getting any meaningful data today. David President Trump the said he is more worried about underemployment than unemployment. He is worried about that you six number. Ethan when you hit full employment, you dont go to normal Wage Inflation. That has started to pick up from 2 to 2. 5 . I think we to be patient. We know this is a very slow process. We know the Unemployment Rate is the only gauge to look at. The you six is still slightly high. I think we are at full employment. I think we are getting wage increases and thats what im going to be focused on. David as you listen to the Trump Administration, they take issue. They say we should be looking at the pretense of patient rate, that fewer people are participating than there were in 2007. Are they wrong . Ethan we need to think about who is coming back and who isnt. Have job growth of well over 100000 and keep a stable Unemployment Rate. They are not all coming back. We have to be realistic about the limits of how far we can go. Jonathan lets look of the jobs increases we have had. Last month, we got 98,000. They said this is what to expect, a series of 100000 and then a month later we surveyed the same economists and they gave us an estimate of 190,000. Where are we at . Carl there was whether impact in march. That did impact maybe not so much hiring it. That did weigh on the march report and there should be some spring back as we come into the april report. As we look at that 190,000 estimate, thats in line with the moving averages. Likeis basically a trend jobs report. Jonathan full employment is a technical term. For everyone on main street, we are not at full employment. When you continue to add payroll at a clip of 190,000, isnt there some space to go . Reason economists are puzzling over when the slowdown is going to happen, they are not predicting exact timing. That is very difficult. That is our excuse for everything. At reality is we cant grow 190,000 at a sustained base. We are going to slow down. Who knows when that is going to happen. David we are going to have Danny Blanchflower on. He is up it dartmouth these days. He says we are looking at the numb run numbers. He said its the quality of the jobs. If you look at the quality of the jobs, that has really suffered. Is there a way of measuring the quality of the jobs people are getting . David i think he is right. The quality of the jobs, just look at the Median Income that hasnt kept up with growth for upper income people. This is a structural problem. It is not something that can be fixed in the next two years. Jobse generating mediocre for workingclass people. Jonathan two defense point, what is the federal here . Carl the fed likes to take the easy off ramp when they save your is nothing they can do. This is not part of our mandate. If you continue to run the economy hot and draw in that labor slack, you can maybe not solve this directly with one tool. You start to create those labor shortages which force employers to make smart decisions about retraining workers were offering higher wages than those mediocre jobs and they become better. Jonathan lets explore the argument. Let wages rip for a while and let the economy run hot. Put morethat, you Business Owners investing. Ethan i think the fed is quietly letting the economy run hot. They talk about this is a theoretical thing. I dont think they are very reluctant to say they are running the economy hot here in i think thats what they are doing. They have barely hiked Interest Rates in the face of solid job data and low unemployment and rising wages. Its a good idea. I agree. We should let the economy run hot for a while to make up for it taking so long to normalize. We clean up some of the structural problems with a modestly hot economy. David is this what a hot economy looks like . 2 growth. Got maybe thats a hot economy . David thats the problem. The problem is fundamentally the u. S. And all of other developed market economies cant grow the way they did in the past. Two percent growth will get the Unemployment Rate to drop over time. Unfortunately. S jonathan thank you very much for joining us. Us. Ill be sticking with its an allstar lineup of guests as we are counting down the payroll report, including bill gross and Mohamed Elerian. From your city and the u. S. Worldwide, happy friday. Youre watching bloomberg. David House Republicans finally got what they been wanting for seven years. They repealed obamacare. Thats what they say. How big of a win it was this for President Trump and speaker ryan . What comes next. We are joined by kevin cirilli. How big of a win was it . For thet was a big win house. I spoke with a senior republican strategist who told me this was supposed to be the easy part. Now we all know this was anything but easy. Its onward to the senate and they are going to have to win over again the moderates and the more conservative. You are facing a dynamic where there are several key senators up for reelection and they are looking at this bill on the issue of preexisting conditions and they look at the amendment put forth by the representatives and this 8 billion over five years and they dont take its enough. Legislationof this getting through the senate as it is our murky at best. There is going to have to be significant changes. David they have taken care of the house side for the time being. Can they get onto tax reform . Kevin we heard this in the rose garden yesterday. They are trying to seize moment a because thats what this is all about, momentum. They hope this will help force their hand in the senate. You are right. They are focusing toward taxes. I can tell you paul ryan has been bullish on this as they try to have another political victory and start tax reform. Behind the scenes, the Interest Groups are working with steve mnuchin. People in the Retail Industry and the Business Community, they are looking to overturn regulations as a pertains to tax aversions. Yesterday, you reported one of the issues heating up in washington is this income stripping. This is where we account for certain profits so you can minimize your income tax as a area why is that so hot . Kevin this is rhetoric from donald trump differing from the policy of donald trump. With regards to earnings strippings, this is a portion of the regulations from the Obama Administration as it relates to corporate inversions. Candidate donald spoke out against inversions, saying they should not be changing addresses in order to avoid paying taxes. There is bipartisan criticism of that in congress. There is a portion of the regulations were how they calculate such funds and how different entities of u. S. Base corporations shift to corporate foreign entities. Thats where this gets in the weeds and thats where they are against the notion. The bargaining chip is from the white house perspective, they hope to lower the tax rate to incentivize businesses to stay in the u. S. Givewant to potentially the Business Community a small win by tweaking some of these regulations. David we will check back with you later on. Much is this likely to affect the real economy . Ethan i think what youve seen this year is the failure to get significant new legislation through. We did not get that pickup in growth people were looking for. I dont think the Health Care Debate is that important. It matters a lot to people getting health care. For the macroeconomy, its not a big story. Its about tax reform and later Infrastructure Spending. Stage, we get no substantive reform until the end of the year and we get no Infrastructure Spending until next year. It means we dont get that pickup in growth. David let me give you alternatives. Say there is a more modest form of tax reform. Is that good . Should people wait longer . Ethan if they really want to get tax reform through, they have to simplify the process. They really need to zero in on the biggest problem in the tax system. Inversion,orporate incentive for companies to move their headquarters and a lot of rough its overseas to avoid taxes. We are much higher than our trading partners. If they zero in on that and make this a less bill, i think we can get reform before the end of the year. If they have a copper has a bill, we may not get tax reform this year. Jonathan the size of the Health People comingally on the program and saying it doesnt really matter, explained to me why when accounts for so much of gdp . The Health Care Spending is happening anyway. With these laws, they move money around. Little bit more health care usage under the Affordable Care act, people have more insurance. It takes away from other spending. There are micro affects of shifting spending from what area to the next. Have a bigseem to impact on the macro trend. President you talk to trump or paul ryan, they would not agree. They think theyre going to save money on subsidies because of the repeal that they can use for tax reform. If someone had a good solution, it wouldve happened a long time ago. This debate has been going on for 40 years. It is becoming increasingly complicated. Its hard to deliver Better Health care at less cost. Lets be realistic. Jonathan to wrap things up, one of the chances of the Federal Reserve getting their rate hike in for the year and a balance sheet, is that more likely than the government getting tax reform before the end of the year . Ethan i am more comfortable predicting what the fed is going to do. Things are going as expected for them. Process is a very long way to go. Jonathan ethan harris, its great to have you with us. Coming up is joe 11. Joey 11. The city global head of Commodity Research ways in on a crushed commodity market. Crude is getting battered this week. From new york, youre watching bloomberg. My emma a warning to london. Brexit mayfein said cause the growth to stall. He said that goldman will have as many operations as possible, it has contingency plans expanding in frankfurt and dublin. Has thought about 1 billion in Company Stock is a plan to he sold shares this week. He still owns almost 80 million shares, or 17 company. Crude is coming off its worst day since opec agreed and out but cut. Output cap. Its the lowest level this year as shale output includes. We are down 7 . Joining us is city global head of commodities. Still with us is ethan harris from bank of america. More to the technicals for the last weeks action . Where do you go . It is technicals in part. It is expectations in part. We had a record amount of trading for a couple of minutes. It was all shorts coming into the market. The narrative for the fundamentals says parrish. Jonathan how helpful is this . Ed i suspect this is a great eyeing opportunity. The market is fundamentally typing up. Tightening up. I think there will be a shift in Financial Sentiment in that will boost the price Going Forward and we are expecting a big jump in price by the end of your. David you know this market and i believe you. I want to understand the fundamentals. What about the reports of the shale increase . Back. China dialing there is some softness in the numbers. How are we confident that is not triggering this . Ed part of the trigger was the chinese numbers. They were not negative, but less positive than they had been. Iron ore and copper is a china story. Its not was related to the rest of the macro world. Gold is a different story. The expectation that gold is going to selloff after the French Election, we had gold popping up for no good reason and its back down to reality. Youve got to look to see who is producing what, who is producing what. We had a real cut, the cut is over 1. 5 Million Barrels a day. Inventories will have to respond to that. What opec did is undermine its own objective. September when they agreed to a cut and november when they had an agreement, they they increased by 1. 5 Million Barrels a day. They cause a little bit of exuberance in the market. The price went up. The curve flattened. It was no longer viable commercially to store oil in tankers. That came out of the market. It was a 60 million barrel drop. Also in the first quarter, we had longs going into the market of record length. 951 Million Barrels of that length from where it had been in the fall. That eventually sold off, but it created a pop in the pump price and the shale industry had record hedging levels in the fourth quarter. That prompted a surgeon rates. A surge in rates. We dont know what that surge is going to be. Jonathan we are going to continue this conversation in just a moment. Do they say ins, the next round and we debate the next extension of cuts, i want no part of it . Add the likelihood is low. Who actually cut . Saudi arabia took most of the cut. There was a little bit of a cut in uae and inchoate. They met the quota. If you look at what is happening, nigeria is going nowhere. Iraq is going nowhere. Libya may have some uncertain and venezuela has been losing production of 30,000 barrels a day. They are balancing the market. If you add up expected demand and supply. David you will be staying with us. Ethan harris will be staying with us. Joinup, we have bill gross us after the payroll report to take us to the numbers. We will talk to gary cohn at the white house. This is bloomberg. Jonathan from new york city, on this payrolls friday, im Jonathan Ferro. Futures are going nowhere. 18 seconds away, we are 12 points on the dow down by not only a 10th of 1 . Four weeks of gains for the eurodollar. We are coming off 2017 highs down a quarter of 1 . But the story of the week has been the euros strength as we continue to fade the tail risk. In the treasury market, we are set up at 2. 35. Lets get an update out that the business world. Several Key Senate Republicans say they well the Health Care Bill and the house and write their own version. The decision will likely delay the prospect of many repeal bill reaching president Donald Trumps desk. Theresa Mays Conservative Party on par for a sweeping victory in next months general election. In france, todays to go before the residential Runoff Election between Marine Le Pen and emmanuel macron. Be sure to stick with bloomberg. We will be bringing you special coverage of the french president ial election. Global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus across the world. Im emma chandra. Jonathan thank you. Full coverage right here from bloomberg from new york and paris as well. There is a commodity bloodbath. Crude breaking through those. Crude breaking through lows. Ethan harris is from bank of america. You watched crude rollover. What does it mean for the reflation debate . Does this play into that thinking . Han this is not a case where the Global Economy is rolling over. We are concerned that at some point, we will see some slowing in china as a titan of policy. But the Global Economy looks ok. It is not sending us a message of some deeper issue. In the margin, rates will go lower, but there is no makro story here. Jonathan i put that question to peter when crude was rolling over and reflation was near 0 in europe. We knew it was a demand story. He was still worried about it. He was worried about what it meant for headline inflation await negotiation. And wage negotiation doesnt matter at all . Were worried about if one be 40 or 60. Both up and down as bad for the economy. As an economist, i do not agonize over the moves we are looking at. David but it is also other commodities like metals. China has a big challenge with the kind of credit they are taking on. At some point, they will have to turn it around. Could this be a canary in the mine shaft . It could be, but i suspect it will not be 2017. David you basically think that the commodities will continue any steady path and not continue to fall . It depends what commodity. David iron ore. Iron ore was the one commodity that had unbelievable spending of capital over the last decade. Why did the price go up . Because of things that happened within china last year. We had a doubling of iron ore prices, and now they are coming back to earth. David good with excess capacity in steelmaking, particularly in china. There is a lot of pressure from the u. S. With cutting that back. Iron ore production will go down. We are respecting iron ore to continue to go down through the year. Jonathan talk to me about the sensitivity of production to price and how it is changed over the last five years . The miners have made massive efficiency gains. Made evenoducers have more efficiency gains. The world has changed. The supply responsibly different, right . The amount of change in oil and gas has been on the cost structure side. But largely because technology has driven down costs dramatically. Bp decision some of border project, that they put on the shelf two years ago. They put the casa and 19 billion they put the cost at 19 billion. Now it is at 9 billion. In 2014 and they thought the breakeven price was now they are going ahead in the breakeven prices 25. This is technology under duress. Jonathan give us the year in target what you consider to be give us a year end target and what you consider to be the target . The target of 65 brent. I was looking at in 1999 when i hed last when i was laug out of an office. If you look at fundamentals and where they are going, you eventually see the inventory draw kicking in. 19981999, it did not happen until may. David ethan harris, take a step back for a moment. Our commodities still the indicator are commodities still the indicator of growth, or has economy around the world changed . They have been a good barometer in the past of what is going on in china, so china is driving a lot of these commodity markets. It has always been episodic with commodities. There are periods where there is a demanddriven market. Were they are telling you the Global Economy is overheating. It just seems to me right now, we are in one of those environments where the supply story is dominating. It is about inventories and not about, is there a big strengthening or weakening in Industrial Production . It is episodic. Jonathan two ethans point to ethans point, is it we are deficit territory in terms of inventory drives. The chinese economy may be slowing down a bit, but the turnaround he happened in the conference industry but the turnaround already happened in the copper industry. For every dollar putting, a costs more to get the material out. Copper, we expect to end the year well above. Jonathan in terms of cost structure changes from metal to crude and etc. , where are you most bullish on that . We are most bullish on wti and brent. We are bullish with palladium. If you look at the supply demand financials, this is a period of time were most Commodity Prices should end the year higher than the started. David ok. Thank you so much to ed moores and ethan harris. Coming up, we have a strong lineup of guests as we count down the u. S. Jobs report. Live from new york and from washington, this is bloomberg. This is bloomberg daybreak. This is the enterprise grade room. Gross, hisbill reaction to the jobs report. David this is bloomberg. Im david westin. After creating a Fourth Television network, he set out to become his own boss and through a series of acquisitions and investments at spinouts, he created iac. And most recently, his company list angies list. Is generally le here is joey levin. Please explain iac. Joey the market cap is a billion dollars. Was a company with a 200 200on market cap billion market cap. Seed of all of this is an 8 billion company could a billion dollar company. Expedia is one. Expedia has created two Public Companies trip advisor and tree votto and trivago. Iac, we have what will be two Public Companies. First is match group. We own 80 of. And then angies home services. David that is the most recent, big deal you have announced. Home adviser is a Successful Company and you are doing well, but angies list has a lot of usage, but its been losing money. Explain how putting those two things together will create something exciting . Has a phenomenal Business Base in operating execution and angies list is a nice product. What they have done at angies list is have a great group of Service Professionals connecting consumers with home professionals. Base that comes back often. When you affect into a marketplace, more supply and more demand supply being professionals, the marketplace gets much more effective. David lets turn to another business you have video vi moe. Eo. Lain vim vimeothe Main Business of since its inception is delivering services for video creators. It starts with giving creators a place to host their videos, shared their videos publicly or privately. Now we allow them to edit and annotate their videos on our platform and sell their videos. It gives anyone who wants to create a video and sell that, it gives them that to for always a it gives them an opportunity for almost no fee. Audience ofs this 50 million users. Consuming a huge amount of content on vimeo. You had an Ondemand Service that you were going to launch, but you postponed until next year . Joey you want to launch a Subscription Service because we had this collection of videos and this relationship with creators and consumers, so we said, lets launch a Subscription Service so people could get a high collection of video here. And our creators can access a new revenue stream. Andtarted to work on this creating content, and acquiring content, and we said, if you are going to get the greatest collection of confit, lets push that out a little bit. David this is jobs day here. Just a short time away from finding out how many channels were created last year. You have a way of looking into a lot of the economy through the various companies you have interest in that you own. What is your perspective on the rate of growth of the economy overall . What you see in terms of employment . Joey yep. Right now, things in our business feel strong. Coming out of the election, we saw some volatility and some unexplained volatility and a bunch of businesses. I dont know if it was uncertainty in the economy or uncertainty in general. We saw things a little bit slower than we wouldve expected seasonally for the end of last year and beginning of this year. All that seems to have come back in march, april, and spring and it seems to be in a good space. David how many employees do you have . Joey about 6000. David still need a lot of people, kind of like kind of unlike manufacturing. Joey we will be creating a lot of jobs in these businesses with the combination of home advisor and emgs list and angies list. David thank you so much. This is joey levin. View fromlets get a the old economy could coming up, fresh reaction to the monthly payroll support from the white house. David west speaking with gary cohn coming up at 10 30 a. M. Eastern time. From new york city and washington d. C. , you are watching bloomberg. Jonathan it is decision time in france as the french president ial election draws close. The polls are drawing closer for a mental macron as the polls suggest he will when and then 52 over Marine Le Pen. Francine lacqua joining us from paris. Good to have you. The second round, i dont feel the sense of urgency anymore. Do you feel the sense of urgency of the electorate to get to the polls on sunday . But ite i do actually, is clear that parisians, like many big cities, would prefer a mental macron. Would prefer a manual macron. E what prefer you manual mmanuel macron. The market is being asserted that macron will win. But high will he govern but how will he govern . If he is going to push reforms through, it would be very key to see the gap. Gape is at 60 of 55 , the that he has will be significant and try to get control of parliament and be able to get stuff done. Jonathan when you look at the mandate that he will have, there are many people out there who would have voted for him because they did not want to vote for Marine Le Pen. How does he assess what is meant it actually is . Francine i dont think he knows yet. I think the candidate macron wants to reform france. Wasle tell me that france not ready to be reformed. He pushed labor reform through, but did not push it enough. Makented to basically firing easy, tax cuts, and at the time, he could not getting through. He has another crack at it. Depending on the majority, he will try to sway this through. That is crucial. To need to look we need look at the logistics to figure out how he is going to go through these reforms, structural tax cuts, but also, how you make this country competitive again by increasing productivity . Del jonathan live from paris, francine lacqua. Ethan harris is still joining us and joining us is a jpmorgan acid strategist asset strategist. As francine points out, talk to me lets assume a manual macron gets through. We have seen that he managed to implement some reform in. Rance taking this more liberal approach. The position of macron has been quite clear to french voters that he wants to continue to go beyond what he has. His mandate is clear. No the path for him will be difficult Going Forward. Not too disruptive as other candidates. Jonathan the market has stated the risk going into the second round. The euro is stronger in yields have come lower in france. What does the price action look like sunday evening going into monday morning . The base case is quite nicely priced in the market. Can your french yields have decreased 10 year french yields have decreased significantly. You have seen the euro strengthening. Equity index is up year to date. Everything is pretty much priced in. We may have additional relief, but all eyes will turn to the election Going Forward. Election Going Forward in june. Jonathan ethan harris, europe has got a problem. France has got a problem. Thats a the Government Spending accounts of gdp in france. You have to get that down. The needs to be some kind of layoffs or pain in the labor market in the shortterm. Is france ready to take that risk . Ethan it is a challenge in a tough time to try to do something aggressive in reform. Weould agree with you that are talking about very marginal stuff Going Forward. But hopefully, moving in the right direction. Jonathan moving in the right direction is one thing. Nothing ande does that lets say france does nothing. Is that ok in france doesnt do the reforms . At the short end, yes. Is avoiding aost collapse. Mostn is considered as the acrofriendly of the candidates. Maybe not only because, you see, there is the evaluation issue. We just released the figures for the first quarter. Is growingn economy faster than the u. S. Economy. We are in the midst of an earnings season. For all those elements, we are expecting european equities. Jonathan thank you. From new york, you are watching bloomberg. Jonathan it is payrolls friday, a bounce back in u. S. Jobs is needed after disappointing Consumer Spending in the first quarter. Opec under pressure with crude collapsing under 45 a barrel for the First Time Since the crude producers agreed to cut output, and the passage of the Health Care Bill breeze breathes new life. Good morning and welcome to bloomberg daybreak. Im Jonathan Ferro along with david westin. Alix steel is off today. Futures are going nowhere on the dow and s p 500. If you switch of the board, the price action subdued as well. Up 1 of a basis point. Dollaryen goes nowhere and the down aoute continues half of 1 . Absolutely crushed throughout the week. David under 30 minutes, we will learn how many jobs were created in the United States last month. To give us some perspective on how we should look at these numbers, we are joined by an economist and an investor. He used to be chair president obamas council of economic advisers. Steve is chair of will it advisers. Of willtet he has run his own investment firm. Welcome back both of you. Thank you for being here. Alan krueger, set the stage for us. It you are usually optimistic you are using optimistic. Are you optimistic this morning . By the way, it is an honor to sit here with steve. So an optimist . An i think there is momentum in the economy it will take a pretty big shock to throw was into a recession. Last year was a bit of an out flyer it was a little bit of an outlier. Growth has gone up 4. 5 . It will not be that much longer that we will have 200,000 plus jobs a month. But we are in a position where the job market is getting close to being healthy. David what will make it healthier . Alan stronger wage growth. If we had saw some participation , just stronger job growth is not enough for people with left the labor market. Some are going with drug addiction problems. Some have rearrange their family lives to cope with situations. That would require more focused policy. Chicken and ana egg. Who saye some people the cause of a lot of those drug problems of the lack of really good, wellpaying jobs for people, and they have become despondent have dropped out. What comes first, the chicken or the egg . There is a lot to be said for that point of view. There have been great studies done on opioid debts. On whateen a remarkable has happened in mortality rates. Happen randomly, it happens out of despondency. We are seeing a substantial decline and good, manufacturing jobs. And as alan alluded to, what they are paying. Wageave to look at the rates associated with those jobs. David one of those stunning statistics is if you look at just production jobs, nonsupervisory chops, the real wages and 50 years have not gone up. That is right. We have suffered a lot of weight stagnation wage stagnation. Inflation has been so low. Now the inflation is picking up, i would like to see wage pick up so we can have a continuation of 1. 1 wage per year. Jonathan should the Federal Reserve allow the jobs to rip and allow rages to rip higher, and hell some of the scars of the financial crisis and heal some of the scars of the financial crisis. There are benefits of a highpressure economy. That is something we have learned years ago. Janet yellen toyed with that idea. But the fed has to because shifts and make sure the recovery sustainable because it is in no ones interest if we have a bull, which is not sustainable, and we end up with severe bubbles, and even deeper recession, perhaps like last time. Jonathan steve, is it sustainable a 2. 2 . What are the chances . Steve very close to zero. If you look at the productivity numbers of yesterday, maybe you get 1 labor growth, that is what we are sitting at 2 . To 3 , but your boring from the future and potentially risking higher Interest Rates and inflation. Get to 3 , and we should be optimistic about trying, you have to address fundamental problems. Tell the you try to electorate that 2 is the best we can do, and that is not a great message to send to the alleged threat. Beyond that, if you are a politician, what is your incentive to deliver the kind of reforms that may take a decade to see the fruits of that labor. What is the incentive for him to do that . You can try adjusting the economy, but even in the short run, you can find yourself with a much higher budget deficit. Reagans tax cuts rolled back a year after they were passed. When people realized it was bad policy after the past when people realized it was bad policy. If i were a politician, i would be articulating addressing problems we face. David though structural problems are, alan . Bill alan alan immigration reform, wage growth. If you look at the score of the bipartisan bill, that wouldve raised gdp growth. There are other estimates if you could increase as much as. 5 . Alan that is overly optimistic. It depends on the nature of the tax reform. That is on the upper bound of what is possible. You have to pay for it. The burden is going to fall on our children and our grandchildren. You are in a situation now where the deficit is not sustainable. Politicians have been unable to andess the long run drivers balances of the federal budget, so that will make those problems worse. Back to jonathan that is like electoral politics. We see the same thing and the united kingdom. We have something called the triple lock to protect entitlements of a much higher age group. The burden was on the youth. His other tuition rise they saw their tuition fees rise. They are not the ones to go to the ballot box and vote. At the policies that are being proposed are implement it, it is a neglect every generation. I know we are was a talk about health care, and that is essentially giving rich people a lot of money and it will come out of the pockets of those less welloff whether you are old or young, it does not matter. If you look at the tax reform package, it is the same thing. I do not think it is a generational issue. It is an economic issue. David as we look for to these , as an investor, how much do these numbers, like job numbers, tell you about the strength of the u. S. Economy . Does it say when put your money . It is a part of a big jigsaw puzzle. It is one month of one indicator. We try to assimilate that information as best we can. Smart people like alan helps us to make the best judgment. But what is driving our thinking is really the multiples and where the markets are trading at. Jonathan steve ratner and alan krueger both of them sticking with this. Next, we will get reaction from the jobs report from bill gross and glen hoover. You 20 minutes away from the payrolls report with full coverage on bloomberg. You are watching bloomberg daybreak. Chandra with your Bloomberg Business france. In france, they are looking at a ruling against an effort to buy signet. They blocked the companys first effort of an overruling against the deal. Executive chief they willoyd said backtrack. While goldman will keep as many operations in london as possible, they have explored contingency plans, including expanding in frankfurt and dublin. The first large chinese made passenger jet have taken off from shanghai on his maiden test light. It is a single aisle playing decide to see up to 74 people. First it the will be the first and the popular market. David it has been seven long years, but finally, House Republicans after reading obamacare. The question is, what comes next . To take us through that, we are joined by kevin cirilli. What comes next . Kevin i am not sure republicans in the senate know. I just spoke with any senior aide to a prominent public and senator who told me the Health Care Package will have to be or altered to win support. Ism told the white house already having medications with Senate Majority leader Mitch Mcconnell to begin work on this and hoping to seize on the momentum of yesterday. Show of very public support unifying in the rose commentt the public period. The same time, there is some suggestion that it will slow things quite a bit. We have the Vice President saying that it could take to the end of the year. What is the timetable . Kevin right. For the senate on health care, it is going to be a widely slower, simply because the way the legislative body works. I would anticipate that while President Trump once have the stunt immediately, they are going to take their time. Several weeks at least. On the other issue, discussions are continuing on the house side because there are returning to house reform. David that is the question. A lot of people have been waiting to get to health care so we can get the tax reform. When will we have legislative language . Kevin we can have the hearings underway, and they begin to earlier this week, you had top meeting behind closed doors with officials on capitol hill to begin discussing how exactly are going to carve out that policy. There was some grumbling amongst republicans in the house that the plan put forth the other week by the administration was not specific the of the week was not specific enough. It was just the opening bid, but they have been hearing from stakeholders. This would be a very contentious battle, particularly underscoring the differences within the republican conference. David you aint see nothing at. [laughter] david thats why we have you down there, kevin. Alan krueger and steve ratner are still with us. As an economist, what is a sensible plan demonstration could come up with that would help drive growth up . Whether it is 3 or not, what would be a sensible plan . There is a lot we can do on the Corporate Tax side. Rateve a high marginal that creek lots of distortions, but does not raise much money. We can reduce the distortions and lower the rate, but you are talking about lori the rate youre talking about lowering the rate to 18 . If you lower it by 20 , that is a big drop. Is it thatimportant you pay for that to get real growth going . Do not payay, if you for, youre adding to the deficit, which will slow growth. It is not all gravy here. David can you save enough in the duction scum exemptions can you save enough in deductions, exemptions and stuff like that . Not put 15 . Jonathan there is a sense of urgency that dominates all of this. What is the rush . Aeve the new president has honeymoon. If you dont get something done and the first 18 months, it gets tougher. You get into the second term blues. It is very typical for any administration to come in and get stuff done. This administration is unrealistic about what can get done and what period of time. Jonathan it is unrealistic to get this push through the house than expected to get through the senate at some point and is something with taxes. It is unrealistic or unusual. Lets put it that way. The republicans complained bitterly in the last administration when things went through regular order and a due process is very haphazard with the backandforth and there is no real tax plan, just one sheet of paper without telling you what the brackets are going to be. It is a very unusual process, shall we say. ,avid staying on health care we tend to say the markets dont really react and it doesnt make a difference. That is the key thing, it is 20 almost of gdp. When you look at the employment numbers, a lot of it is an health care. How much could these reforms affect substantial part of the economy . You could cause a lot of damage with Health Care Reform, or do a lot of good if it is done right. It is a major part of the economy, and more portly, you are affecting peoples lives and more importantly, you are affecting peoples lives. Aha moment a because it will raise costs for millions of others and benefit a small sliver who will benefit from the rollback. Jonathan lets explore that further. We had even harris on the program an hour ago and we and he said it does not matter. The money will move around. Steve, what you say back to that . Think they are going to do anything that will change the trajectory. The economy has so many drivers that affected. But as you have seen in the performance of stocks over the past few months, whatever they do specifically could have a major impact on certain parts of the investing committee. David as an investor, how much attention do you pay, whether it is tax reform, Health Care Reform do you Pay Attention to it at all . We pay an unbelievable amount of attention to it. We spend a lot of time going over these kinds of issues trying to understand them. Both to understand the micro pieces of what is going to happen to the hospital sector or the drugs sector, but to understand what is going to happen to the overall economy would Interest Rates and currencies. Jonathan jpmorgan says u. S. Tax reform is an asymmetric risk to the upside. A lot of people apply a very low probability of them getting through the tax reform. Is that were used in on the issue is if they get it done, great, but it is not necessarily it is not necessary . Are based case in our minds minds isse case in our a long what alan is talking about. Not . 5 trillion and try to fix Corporate Tax reform, which we agree is a problem and try to bring the money back from overseas. There are some devil and the details, which if you located which is if you lower it, you have a problem with the past through those pass throughs. David so, what is your number, alan . [laughter] alan i always resist answering that question. You never tell me what is the revision. Jonathan smartest response i have ever heard. David what is the revision . [laughter] david so your number . Alan close to 200,000. David and i suspect you dont predict . [laughter] david thank you so much for being here. Alan krueger, you have to stay with us because you are reacting to these numbers. Coming up, we will get an Immediate Reaction from bill gross and Glenn Hubbard will be with us to also react to the numbers. This is bloomberg from new york and washington. Jonathan you are watching bloomberg daybreak. Im Jonathan Ferro. Future slightly negative on the dow. We are dead flat on s p 500. Treasuries muted with yields higher by single basis points at 2. 36 at 2386. Sub 45 earlier. A lot to discuss. The payrolls report and a few minutes time. 4. 6 Unemployment Rate. Joining us from his office in fx strategist. My 90 is the median estimate 190 is the median estimate. Will be a pretty good bounce back from last month. Historically, anytime there is a weak print in one month, we get a pretty good snap back did last month was weatherrelated. Another snapback is likely. Averageoking at. 3 on Hourly Earnings. Jonathan where is the enthusiasm foreign upside coming from . Points youreta getting encouragement from . Brad last month, we had a big weather impact. There will be a pretty good snapback there, but i do agree, the data has been looking a little bit shaky, but the underlying economy is still rather strong. Ofdont really see any signs many eminent rollover. I know some of the data recently has caused owners to ratchet up a little bit, but we are not looking eminent data. The dollar will continue to crews. Cruise. Jonathan we had this grind higher and dollaryen. Where are we now . Where are thing skewed . Brad the dollaryen has been rallying with the japanese locals on holiday. A lot of japanese out of the markets. The dollaryen has been very well supported. Bill rates in the u. S. Are grinding higher. Nominal rates have been stuck in the mud with 10 year slowly grinding back. It is around 2. 35 now. I think a lot of the market is using yen as a trendy currency currencyas a trendy still but shifting towards a hawkish stance. Is a lot of movement in the commodities markets, specifically it takes up a lot of steam in the last couple of days, canada days. The Canadian Dollar was hidden had been hit hard. That is gaining a lot of steam. Commodity markets are interesting technical levels. They are definitely oversold. But if they push lower, they will roll the market a little bit in our space in fx. Davids point, commodities have an interesting because they have grind it lower and crude has plunged. But yields have kept creeping higher. When you look at rate differentials and the yield on treasuries versus elsewhere, what is the risk . Brad there is a risk that indices always matter and we look at the numbers, but we could end up with a nice, little be nine report, a nice little benign reporting you will see the correlations come back into play. You said speakers today we have fed speakers today. And then the French Election. There is a lot on the docket in the next 48 hours or three days. Jonathan alan krueger that killed jobs guesses, what you looking for about two minutes time . Brad well, as i said, you have to take this with a grain of salt with these numbers, but we will see bounceback with the weather affected numbers last month, labor force participation. The house survey was quite strong last month. Beenhan alan, you have optimistic about the jobs report. You think they should be significant improvement of thought . Alan to be honest, we have seen improvement. Steady manufacturing has been affected by the dollar. That is something i will look at what the commodity cycle again. I will look at mining. But, what is driving employment is services. Those are largely insulated from those forces. Jonathan alan krueger will be sticking with this. Brad, thank you very much, sir. We are 30 seconds away from the payrolls report. Futures going nowhere. 16 points down on the dow and flat on the s p 500. Positive by not even a single point. If you switch up the boards, here is the seen elsewhere. Crude the pain continues. Treasuries with yields higher. At 112. 40. Dead flat the jobs report now. April beatings in estimates of 190,000. Unemployment down to 4. 2 , best since may of 2007. Rebound pretty solid from the early years estimates. Mediocre rise in wages. 0. 3 month on month and 2. 5 year on year. A solid rebound from the early year reports. We had weather discussions early in the year and sing a tighter labor market with solid gains pursuant to the feds transitory underemployment rate down the lowest since november 2007 at 8. 6 . The parttimers and discouraged workers are the lowest in nine years. Good news for the administration and the u. S. Economy. Hours worked are steady, so we are seeing a good sign of demand for labor. In general, industry breakdown we did see we tell bounceback a bit. The first increase since january. In effect saying, constructing manufacturing and construction down. Jonathan thank you very much for that report. Lets with through the headlines. Whip through the headlines. Drops 4. 4 yment rate from 4. 5 previously beating estimates, and wages coming in at 0. 3 month on month, but softer year on year at 2. 5 . Till with us is alan krueger going through these numbers, a quick read. Report,finitely a solid but there is a cloud that michelle did not mention. Participation rate fell. The Trump Administration has made a victim about participation in 70 Unemployment Rate does not tell the whole story. Administration has made a big deal about Participation Rate and it does not tell the whole story. The Trump Administration talked about being underemployed. Jonathan brent crude softer on the session. Futures are stable and yields were up about one basis point, but now we are not on the session at 2. 36 . A solid jobs report. We will continue to that conversation. We will head over to bloomberg surveillance, standing by with bill gross with the market reaction. Joining us is bill gross. David gura and tom keene does the two mr. Gross. Bill, wonder filled bill, wonderful to speak to us. Even though there is not much market action, when you look at last months moldy report, this is certainly not the bang up report that economist wanted to see. Bill surly not in terms of wages and for potential for the fed to be a little stronger, little more hawkish. You know, the jobs number is a good number, and the. Nemployment number came down there is something in there for everybody. To me, simply suggest that the fed continues on its course with gradual increases as the primary question, what is gradual mean . That means 40 basis points for the year. Tom chair yellen does focus on this labor report. Dish you need to focus on our usual monthtomonth and quarter to order way, or does she really need to focus away from the jobs report with a lot of other things within our American Economy . Bill he she needs to focus away, there has been a number of that lowhat suggest negative interests rates do strange things as they punch through. I have been talking about that for several years, and i do not think the fed or other Central Banks really focus on that enough, the fact that low Interest Rates keeps zombie corporations alive and that feeds into your question of productivity, and the fact that low Interest Rates destroy very productive business models, like Insurance Companies and pension funds, and savings in general. Way offed, to my thinking, is a modeldriven type of institution. And the models are outdated. They need to get into the future as opposed to come back from the past. Tom we have to go to the market report. For the jobs i want to go right to the research chase going on in the last 48 hours. Would you presume commodity dynamics we have seen and the worries about china, which are always there when commodities fold right back to a central bank discussion of the United States of america, were maybe it is not a temperature tantrum it willantrum, but tantrum, is that a we look at a more restrictive fed . Bill you look at china you mentioned china, and that is a debth one in terms of their creation. A year ago, china jumped up credit to 20 and create a Global Growth more than expected. Now, they tend to be tightening terrains, but no one really knows tightening the reins. But no one really knows. I have a sense that credit is being restricted and a shortterm rate has moved up 200 to 300 basis points. And makes a difference on a global basis, that is why you are seeing oil prices and other Commodity Prices come down by 5 , 10 , and sometimes 15 . China is the growth and credit creator and is slowing down. Talking to aen representative from the citigroup, but he does not think trumpanomcis has run its course trumpanomics has run its course. What you think of that . Bill it is running its course in terms of markets. Obviously, the real economy is only three or four months old in terms of trump and administration and the policies have not had a chance to work yet, let alone be put into law. But the potential, of course, for lower Corporate Tax rate, whatever that is, the potential for the regulation in terms of things industries, the potential for globalization, you know, there is lots that have affected currencies. Has yet tol economy punch in. I am a skeptic. Is real economy in the u. S. A 2 number Going Forward, and is a fountain of productivity, and that productivity can be affected by Corporate Tax rates. For me finish the thought and i will let you ask another know,on you productivity is a function of investment, corporations have a lot of money i can borrow at the cheapest rate possible, but yet they fail to do that. So cutting Corporate Taxes and letting them repatriate money from outside of the United States, will they do a lot of good in terms of investment . I dont think so. 2 real growth is where we are headed. If ands and buts were candy and nuts, everything would be good. [laughter] what does this mean for Redwood Trust reform . Bill it gets down to the real growth number. Great if they created the percent type of economy, then investors could be patient. We did not see that in the first quarter. Still up in the air, but 3 is is the number that they are all based on. There is disappointment ahead, but optimistic moment in terms of prices. Tom how correlated are the markets right now . I was talking with good folks in there was a statement of the lack of correlation in the markets. How in lockstep are the different Asset Classes right now . In prettyink they are good lockstep. You could talk about the lesser he months about correlation, but i always go back to the most asset prices in the are most correlated with the neutral fed funds rate. The there, we derived discount model, the dividend discount model. The correlation is really in terms of Interest Rates. As long as we stay stable and relatively low, markets can stay stable and relatively low, but there is risk there third perhaps we can talk about that in the next segment. Jonathan that is bill gross of Janus Capital speaking to tom keene and david gura. Payrolls came in at 211. FromUnemployment Rate down 4. 6 . Average Hourly Earnings are softer than the median estimate. 2. 7 was forecast the forecast. Unchanged and remain largely unchanged and the dow was flat. The s p 500 positive by a 10th of 1 . Treasuries were offered up by a basis point. Yields have turned lower by two basis points on the 10 year. Dollaryen is weaker, so again yen isnger so the stronger. Coming up, Glenn Hubbard will have fresh reaction to the payrolls report. You are watching bloomberg. Chandra. Emma the chief economic advisor. David im david westin. Just to recap those april payrolls numbers. It nonfarm a came in better than estimates. On a plummet rate fell 4. 4 . Earnings 4. 4 . Joining us is Glenn Hubbard. He joins us from upper manhattan. Still with us is alan krueger. You look at these numbers. Is the glass halffull or halfempty . Glenn you can tell the story in both ways. I see the labor market doing to heal and economy continuing to normalize is a guidance toward Monetary Policy, but there are still structural problems. Labor force that dissipation and Unemployment Labor force dissipating. David that is what President Trump is focused on. How concerned should we be about that . Glenn we should be concerned about low rates of nonparticipatory. The administration and congress are rightly focused on that word it is less of an issue for Monetary Policy. Monetary policy has done its job, but the real Structural Reforms we could be doing. Nonelderly,aid because some economists talk about the baby boomers. Should we be more sanguine about that participation issue . Of it isrtainly, a lot older workers. We also saw declines among prime age workers between 25 and 54. That is when policy can be affected, even among the elderly, there are payroll tax changes that could encourage work should david are you concerned about Participation Rates Tom Alan Krueger seco alan absolutely. What is driving the top line number is i would highlight the role of women. What drove the increase in the u. S. Was women. That came to an end in 2000. Labor force dissipation for women have been declining ubiquitously. I think that has something to do with flexibility at work or not enough flexibility at work in the u. S. We do not have paid maternity leave, which is an embarrassment internationally. We are doing worse in many other countries like him to labor force participation. David that sounds like more regulation to me. I read you say that is not necessarily the right way to go . Glenn if we really want to encourage labor force participation, we have to make sure that people have the skills for the modern work force, and we have to support work. This is about expanding beyond income tax credit and thinking were probably about supporting work. If we do that, we will see improvement in the prime age labor force dissipation rates. Labor force Participation Rates. What you we be looking for this point in the cycle for wage growth . Glenn obviously faster wage growth is better could we have seen and recovery in wage growth to have better wage growth going for it, we will have to see continued improvements in productivity as well, which we have not yet seen. Jonathan the Market Pricing is a must 100 . He said the fed, their work is done you said the fed that their work is done. What suggest that their work is done cycle that their work is done . For the overall macros situation, we have a normalized economy. Economy thatn should be on lifesupport. If we are concerned about nother variables, those are concerns monetary policies. I would expect the fed and hope that the fed would continue its normalization. Jonathan alan krueger, you share that view . Everythingeed with glenn said, and i think he said a more articulate than i could have. [laughter] david who wouldve thought . Be stayingrd will with this. Alan krueger, thank you for your time. Coming up, we will give you a fresh reaction to the jobs report and from the white house itself. Director of to the national of the national council, gary cohn. From new york and from washington, this is bloomberg. David this is bloomberg. Im david westin. Glenn hubbard is still with us. I want to talk about policy because you suggested that it is a that it is not up to fed policy to fix what ails us. It is up to fiscal policy. What can be done by the government, not the fed, to address some of the things like Participation Rates in productivity issues. Glenn there are a number of things that could be done, david. I would start with tax reform. But the reform, if it is focused , perfectly taxation Corporate Taxation, it could have quite significant effects on investment and Inbound Investment into the United States. That is the best place to start, but the second key areas are in regulation, both in product markets and financial markets. The president and administration are working on those. The third 20 labor markets would be a direct the third towards the labor market would be on training. Your misspending money we are a. David lets start with tax reform. Everyone is talking about tax reform wants again once again. Growthortant to get real and that the revenue neutral . Glenn it depends on what your objectives are. If you want a revenue neutral tax reform that cuts substantially marginal rates on businesses, you are going to have to have a new tax. How still try to do that with the border adjustment. You can do something else. Alternatively, you could have smaller cuts and be revenue neutral, but then the action is how effective will you be . The revenue maximizing tax rate is corporations in the oacd in the mid to high 20s. To go further would be excessive. David could you make of the revenue loss going into the mid20s . Good you get there on eliminating taxes and teachers by cutting deductions and things that go glenn you could get there in base broadening. The second is a pickup in investment and growth. To know that if the u. S. Became a lower tax country, more investment and profits would be located inside the United States and recover some of that revenue producing deadly have a tax bill they got to to the mid20s without too much of a sweat. Going below that raises the russian come in a when below that raises the russian if you wanted to be revenue neutral. David it is interesting that when you mentioned what could be done with taxes to affect real growth, you mentioned Corporate Taxes, but not personal income taxes. Did you intentionally exclude that . Glenn if you want a business tax reform, it starts with Corporate Tax reforms because it is the most elastic. Is if you start to have business tax rates that are well below other tax rates, you have tax planning going on. It raises questions. Carter thought needs to be given there. Take a be very expensive am a revenue perspective, so i would start with corporate reform. David you mentioned the border adjustment tax, but it is not clear where the white house is on that. It is not clear it will get through the senate. Instead of that, could they make up the same amount of money, which is illuminating state and local taxes eliminating state and local taxes . Glenn more naturally, that should go to individual tax reform. When economist talk about individual tax of one, they say lets get rid of the state and local tax reduction. If you are going to take an individual to pay for, i would do that on the individual side. Jonathan Glenn Hubbard, really appreciate your time. Thank you very much, sir. Just of the cap the jobs report. 4. 4 oll coming in was the Unemployment Rate. Wages softer a 2. 7 . Reaction. The french from new york city, 34 minutes from the opening bell. Futures up on the s p. The dow jones goes nowhere. City, youre watching bloomberg. Payrolls, the jobless rate falling to a decade low. The market boost their bets on a june rate hike. Again,der pressure once crude collapses under 45 a barrel since they agree to cut output. The passage of the houses Health Care Bill breeds into a pledge to deliver the biggest tax reform in u. S. History. From new york city, good morning. Im Jonathan Ferro. We are counting you down to the opening bell. On the s p, on the margin of by 0. 16 . The dow goes pretty much nowhere, unchanged ahead of the open. , yields unchanged. 2. 35 on the u. S. 10 year. Dollaryen grinding higher, that weaker story through the week. Joining us now with their reaction to the job report is Mohamed Elerian from irvine, california. Alongside him, Danny Blanchflower. Muhammad, i want to begin with you. Jobs report on the surface looks solid. What is your view . It is consistent with a hike in june and three hikes overall because job creation remains solid and because the u6 areoyment rate and down. In terms of the bigger issues, which growth is relatively sluggish and a Participation Rate to down. Consistent with the that hiking but not consistent with economic takeoff. If i told you average Hourly Earnings was 2. 5 , would you be able to tell me the unappointed rate was at 4. 4 . In a sense, that is the big read. What we have learned since 2008 is the unappointed rate does not tell you much of anything. Youwould have thought at 4 would see 3 or 4 wage growth. I agree, we are moving in the right direction but i think we still have lots more room to go, if you like. Evidence,ink there is actually, i think there is evidence the economy is slowing. The commercial loan numbers were disastrous, down 8 . There is room to maneuver here but i think we are a long way from full employment and wage growth is still a long way from where it would be if it we were anywhere close to it, so its clear we are aware below 4 . What went wrong with the models, where are all of these people coming from . If you focus on the Unemployment Rate prior to 2008, it told you everything about all the other measures. The problem since 2008 is the unappointed rate and the employment rate and Participation Rate especially have become separated. So we have all these people outside the labor force. If you just restore the same implement rate today as you had in 2008, we are talking about another 8 Million People being in employment. , asy time we have to focus muhammad did, we have to focus, yes, the rate came down, but so did the Participation Rate. Think about what happened in the election, these millions of people said we want jobs. If we were at full employment, they would find plenty of jobs. Another big story which is actually what is going on in the big cities is completely different from whats going on in the rural heartland. David mohammed, do you agree with that . The real issue is a demographic issue in terms of Participation Rates, a lot of aging baby boomers no longer in the workforce and that is expected. I think more generally it is the balance between cyclical and structural. Carter the reason why the models are not accurate and a part of the reason why the information content has come down is because structural issues have become more important than cyclical issues. Demographics is one of them but the technology displacement, there are lots of others. Jonathan Danny Blanchflower . But the arguments about aging and technology are absolute nonsense. The reason is, look at canada. They have basically had the same technology and has had more aging and has not had this fall in the Participation Rate, neither is germany, neither is france, neither is the u. K. I read a speech by a member of the mpc and said aging and technology are the reason why the Participation Rate in the u. K. Rose. I think we can dispose of that. You have to think about what is going on. Mohammed is probably right, there are deep structural reasons in the u. S. Why the people have left the labor market and why we cannot people get people in the role hartline to work. America is hurting in a way it is not elsewhere. If you look at measures of pain, americans are in pain. If you were in full employment, that would not be true. There is a disconnect between the past, economist models who dont understand things going on outside of the cities. If you look at who voted for brexit, frexit and trump, it is outside of the cities. The world is different. The dangers, our models, the fed, the mpc and others are looking at what happens in the cities and are missing what happens outside of them. Jpmorgan has put out a risk on scenario that could be brewing. The fed begins to normalize and continues to normalize, almost on autopilot. Do you consider that a risk at this point . Policy mistake is certainly a risk. I dont think that is the major risk. It is a risk, not the major risk. More generally, i want to go back to something danny set which is important, he used the word disconnect, and he is right. There is a disconnect between soft data and hard data. Or is a disconnect between the equity market and the bond market. I think what is more striking is markets are incredibly sanguine about all of these disconnects. The biggest risk is we will find out that this disconnect is a signal him and not a noise. That is the biggest risk to the markets right now. Lets explore that, where is the real signal coming from, the bond market or the equity market . Data a soft data or hard outside of the jobs report . Somewhere think it is in the middle. A soft data in equity market has embraced policy implementation that will deliver high more inclusive growth. The bond market and a hard data is telling you there is its a lot more complicated than that. I think the truth is somewhere in the middle but what is striking is how low market volatility is, and theres a good reason for that. We have been conditioned over and over, dont worry about volatility, Central Banks are there to repress it. The biggest danger is that assumption will be challenged Going Forward. David im struck about the analysis of the various disconnects, we have identified three or four of them here. What is the cause of that . Could we be looking at that old proverbial paradigm shift . Are we getting answers to the wrong questions . David think about what has changed. We arethis great line, in the long driving conditions of semislump. The paradigm we are still in, if you recall, is that prior to 2008, Interest Rate were positive, inflation was the issue. Now we still have Interest Rates really low, negative rates around the world, things fundamentally have changed. We are talking about positive job numbers. Mohammed talked about the disconnect. Numbers really weak gdp. It is pretty hard to work out what is going on, and that is the problem. Weak gdpaw terribly numbers and we will say, lets ignore them. If i were the fed, i would say, i dont quite know what is going on with this disconnect. A lot of it is based on the belief that trump will have a big fiscal stimulus and there is infrastructure spend coming. What if that doesnt happen . It is hard to work out, is the economy slowing or not, and we dont know the answer to that. Said yellen has basically we have raised rates but there is nothing in the data to tell us to do that. View woulda guy, my be, you should not raise rates until you resolve the issues that mohammed has talked about. We dont even know if the economy is slowing. Jonathan its very easy to build up the various arguments. The headline numbers this morning were solid. The bond market, i understand why people have jitters. There is another disconnect this morning in todays price action. That is crude rolling over in a significant way in the last 24 hours. Treasuries holding on. Why is that disconnect exists right now . In the last year or so, we saw crude rollover, we saw yields go with it. Why are yields hanging in there . Oil is about supply and not demand, and thats important. The market is coming to terms with two things. One is that shale production is much more responsive that lower oil prices. The racers show you between opec production cuts and higher shale production out of the u. S. Is being won by higher shale production out of the u. S. The market is realizing that ,here is shale production incremental production, even on oil prices below 50. That is new for the market. The assumption is that would not happen. The second is within opec, the allowance for countries like libya and others is not big enough, so production cuts are not proving sufficient. It is a supply story, not a demand story. If it was a demand story, the treasury market would react much more in the way that you suggested. Jonathan Mohamed Elerian, great to have you. Dannybench lower blanchflower will be sticking with us. Coming up later today, another big one for the bond markets. Minutes dedicated fixed income. Fromf our guests is Goldman Sachs and another is from aberdeen. Futures are staple and positive. You are watching bloomberg. David this is bloomberg. Im david westin. Job numbers are strong but the white house is not sanguine with a firm focus on jobs. Kevin cirilli is with us now. Give us some sense of where the white house is on their overall package of progrowth reforms. Kevin the president just tweeted he will be altering his travel plans and going to bedminster to save the country money. Progrowth, to having he is, of course, trying to save money that way, i guess. David im sorry, isnt that where his golf course is . Kevin yes. His whole plan to pay for this centers around the idea that he will be able to achieve 3 at minimum economic growth. The best illustration of that will be a string of positive job numbers. This is somewhat positive but does not necessarily beat expectations the way they need to in order to convince republicans on capitol hill who have concerns about how to pay for this tax plan, they will need more. David they need to get through the republicans. What has been the democratic response to health care and other reforms they are proposing . Kevin they already pull testing moderates behind the scenes heading into the midterms. You can be sure they will be making the soccer issue a central issue in the midterms. I want to put up a statement from elizabeth warren. She has emerged as one of the dominant leaders and opposition for this. She said this is not football, its not about scoring points. Trumpcare will devastate Americans Health care. Families will go bankrupt. People will die. Tragedy does not ask who you voted for. Health care is a basic human right. We will fight as long and as hard as we can to make that a reality for everyone in america. That part about health care being a basic human right will shape the larger Democratic Political policy debate for quite some time. David certainly through this calendar year, a lot of debate going on. Thank you, kevin. We talked earlier with Glenn Hubbard, the Columbia Business School dean, also a supporter of President Trump. We asked him what sort of changes could be made in terms of policy on the fiscal side to stimulate meaningful job growth. This is what he had to say. Start with tax reform. If it is focused on business taxation and the most elastic market, Corporate Taxation, can have significant effects on investment, productivity, and on Inbound Investment into the u. S. That is the best place to start. The second key areas regulation, product markets and financial markets. The president and the administration are working on those. The third tour the labor markets would be a direct support for work in training. David still what this is Mohamed Elerian and Danny Blanchflower. Toant to have you respond Glenn Hubbard, some of the issue that you have been concerned about, Participation Rates, the quality of jobs. Do you agree with his prescription on what we need to do . I agree with almost everything he said. The thing that we can talk about is direct support for work and training. Perhaps targeted support, but giving incentive to firms to hire people. What we have seen, we have seen a big rise in the use of capital, we have seen firms basically substituting away from workers to capital. That is because the relative price to capital is low. If you could think about ways of giving firms incentives to hire people, focus on those incentives, you could change the relative price. So the point of using all of this technology is it is relatively cheap. Investing in Human Capital looks like a really good idea, and perhaps go back to our earlier point about disconnects between the cities and rural america. I think, certainly, perform, thinking about training, giving firms incentives to train, incentives to hire, that is a sensible way to go as a big part of tax reform. At the same time, think about what happens in the bill that was passed last night. In the places that voted for trump, the places that are hurting, those are the places that will be hurt the most. In a sense, you can target that tax reform to those places. Make these places that are hurting enterprise zones or something. Tax reform is central but the way to get the Participation Rate up and to help these people is to give incentives for people to work and subsidize labor relative to capital. Accomplishede something today, we have Danny Blanchflower agreeing with Glenn Hubbard. Do you think this sort of prescription would help to address the structural issues that exist . You can. I would add infrastructure to that list of three. I would also add better Global Policy coordination. But, david, here is an interesting issue. If you have glenn, danny, and i agreeing, it tells you something important. It is not about economics. The economics are relatively clear, its about politics. One of the interesting debates today is, is this focus on Health Care Going to actually slow down the implementation of progrowth policies that are needed to increase the growth rate . Thats the key issue, its about the political judgment. The economics are clear. I repeat the fact that glenn, danny, and i agree signal that the economics are pretty clear. Jonathan when it slow down the implementation of progrowth policies . That ithe danger is will. The raising level of uncertainty is a big deal. Go back to what mohammed said about infrastructure. We heard trump talk about it a lot, but it takes a long time. Says to trump, we are going to do infrastructure. It mom not have an effect for a long time. You have to get it going, you have to have a progrowth plan and move along with it. Changing structural things takes a while but you need to have these progrowth policies in place. Thecannot just put them on back burner because it takes a long time to change. It is a structure and that is the problem. If you get deflected passing a bill in the house and nothing will happen to it and it raises uncertainty 38,000 people in health care, an increase for them this month. If you raise that uncertainty, presumably job creation in the Health Sector will decline. Thing andjob centric that is a big chunk of the job creation. Ahead of theamed market open, people will be watching equities. I wonder what the signal is coming from the bond market. Thebasis point north of mark that we have not closed below since the election result. If you break 100 basis points, what is the message for the Federal Reserve . Is it that you are going a little too fast . Be careful, be delivered, be measured. But also dont underestimate that that spread is being by international factors and european factors in particular. I also look at the spread between the 10 year here and the 10 year bund in germany. It says to the fed, this is not as straightforward as it couldve been in the past, but in my view, and where danny and i disagree we have agreed on just about Everything Else i worry about the collateral damage, especially in excess of too taking of maintaining stimulative a Monetary Policy and conditioning the markets that the fed will always be there best friend. Jonathan we could talk about this forever. Bund treasury spread, 1. 94. Fantastic to have you on the program. Mohamed elerian and Danny Blanchflower. Coming up, jurrien timmer, the. Lobal macro director david this is bloomberg. Im david westin. Dent in ibmtt put a shares today. It turns out he sold 30 of his stock so far this year, this after many steadfast in his support for the company and the ceo in the face of declining revenues and lackluster performance. Joining me now is a Senior Analyst for i. T. Services. This came as a surprise to me. Lord have been very steadfast saying i believe in this company. What changed . And think his viewpoint they have not been able to turn around as quickly as they had thought given all of the competition from cloud players, amazon, microsoft. One of the things he referred to was competition. Is that in the crowd specifically . Ibm operates all of the legacy i. T. , that is where the dominant place is. The new or i. T. Is led by amazon or microsoft, google. That is what the ibm model wants to emulate but it is not as fast as they would expect. David ibm stock has not been on a tear already. What is this going to do . To what extent was it protected by the blanket that Warren Buffett had thrown around it . Anurag you could say a little bit of nervousness in the Management Team to figure out how they can hasten the pace of this growth rate. They may need to do some acquisitions to increase their growth rates and turnaround plans because otherwise investors will get nervous. David it turns out Warren Buffett talk to her. Thank you. Opening bell is up next. Lets go through the action for you. Futures are positive by about. 2 . The dow is dead flat. From new york, the opening bell is next. You are watching bloomberg. The cyclical trade may be getting a little bit longer are 21 seconds away. Futures are negative three on the doubt. After a people report that delivered and surprise. We were looking for 190. The print was 211. Wage growth softer than anticipated. , yieldses this morning unchanged at 2. 35 on the 10 year. The dollar goes nowhere at 98. 79 on the dxy. Crude all over, getting absolutely crushed. South of 45 briefly. We settle at 45. 52. There is abigail doolittle. We are looking at a relatively unchanged for major averages here in the u. S. After thats up side. We have the dow down slightly. The s p 500 up by. 2 . The nasdaq up almost. 3 , not putting a record yet. Somesome record strength here. Even though investors appeared to be treading water ahead of the french president ial elections, some bullish action nonetheless. Take a look at some movers. He sees these as potential takeover candidates for apple. Apple does have more than one quarter of 1 trillion in cash. Investors wondering what they may do with it. Some believe netflix is the most likely takeover candidate. Some believe disney could be a takeover candidate. Finally, also on the speculation room mermel around takeover potential, General Mills. These chairs have been of 6 in the premarket earlier as investors speculate that Berkshire Hathaway may team up with 3g capital to buy General Mills but analysts say there is no truth to that speculation. Still up on the day. Jonathan thank you. Corporate debt of apples cash pile, 148 billion in corporate debt. That is bigger than a lot of bond funds out there. You thought tim cook made smartphones, he runs a hedge fund. That is the story in the markets. Joining us from boston is jurrien timmer. Gina adams is also with us. Jobs start with the report, we fast forward to june, is a rate hike inevitable . Irp, accordingo w to the bloomberg, it is. It needed to be a bad number for the fed not to proceed with a june hike. Obviously, it was in line, maybe even better than people had thought after the adp number. The fed will in all likelihood go in june. The markets are on board with that because they are already pricing it in. I dont see this as a market moving event. Positive onocks are the s p. Feels like good news. Gina hard to imagine a much better report for stocks. Back over the last five years when the employment number beat expectations, stocks are up 70 of the time, they are up half a percentage point on the day. You can expect generally good news is good news for stocks. When financials are 15 of the index, even good news that stimulates a fed increase is also good news for stocks. Jonathan your point on the financials, dependent on whats happening with the treasury curve. There is not really validating the financial bull calls. How do you reconcile those two things . Gina you have to have enough growth that you justify the fed continuously increasing rates and the long end of the curve going higher, too. So far the long and has remained anchored, and that is tough for thatcials, except for period just after the election. The long end of the curve went higher faster. David the stock market is paying a lot of attention to job numbers. Why are the not looking at consumer numbers, auto numbers, Commodity Prices . There are a lot of things they are not paying attention to it seems. Jurrien remember, the russell 2000 has gone nowhere since december 8. It was at 1393 on december 8 and it is at 1380 today. The markets are not really rallying in the u. S. Up 8 ci world index is over that same time but that is because they lack behind for so long. The economy is stuck with a very low speed limit. ,e are running at about a 1. 3 about 2. 9 on nominal over the last 10 years. And no productivity growth no labor force growth, or at least very little, we are stuck at a 30 Miles Per Hour speed limit. You have to be careful what you wish for. If we do get higher growth and it exceeds the speed limit and the fed comes into play and offsets that, we are stuck with really the same economy but with higher rates. I think the market right now is comfortable that earnings are growing. Q1 earnings are growing at 13 yearoveryear, it looks like the full calendar year earnings will grow at 8 over last year. Those are pretty good numbers. It puts us in a different regime than we have been the last couple of years. Thats why the market is completely on board with the fed now because we have enough growth, earning growth, to withstand higher rates on which is something we did not have over the past couple of years. That is why good news is good news. Jonathan when the earnings come in, they will be backward looking. You look at the first quarter, terrific. Rejections Going Forward look great. If they validate them, perfect, but you need upside surprises. I wonder whether the equity price depreciation will be driven, and where will it come from . The economic surprise index has rolled over. Earnings are pretty terrific. Where does it come from . Jurrien we spoke about this the last time i was on the show. We have reached sort of peak reflation. We are in this global synchronized economic expansion, that is why world equities are finally joining the u. S. Equities party. Now we have reached an Inflection Point where momentum rates have peaked. You mentioned the msci, you could point to the ism as well. At this point, things get more choppy. A still proceed but in a more choppy way with less momentum. One of the issues in the market i have for the u. S. Stock market, the trailing p e bombed 2. 5, three points after the election on the correct assumption that earnings would pick up, and they have. Now the market has to grow into the earnings. I dont see any upward pressure and earnings have to come through so that the markets can come back to a more normal p e of maybe 18 or so instead of 21, at least on a trailing basis. A lot is priced in, and that is one of the reasons why the markets have not made a lot of headway over the last couple of months. Jonathan gina, you agree . It is tough for valuation to expand when shortterm Interest Rates are going higher. We did have this incredible commodity recovery over the last year, and in my view, that was a large reason for the s p to recover as much as it did. Oil prices had bottomed, oil prices have doubled, the metals complex bottomed and an improved. This improvement was a lot of what the index went through over the last year and now we are looking for the next areas for growth. David lets talk about the payrolls themselves. Ve Carl Riccadonna here. Everybody is focused on the 211 number. Should we be as excited as everyone seems to be with that one beat . That is a return to normal, it tells you march was a sneeze, not the beginning of a terminal illness or the labor market. It signals we are back on track. However, there are equally compelling messages beneath the surface. We always talk about the change in the length of the work week. Change is the equivalent of a payroll gain on the order of what we saw on the headline print. In terms of worker hours generated, this is significant. A gdp growth is indeed bouncing back in the current quarter, probably consistent with Something Like a three handle on the front end of it. Even more importantly, when we look at the aggregate hours number and multiply it by the modest increase in earnings, it tells you we are generating significant employment income in the economy, and the key to the bounceback from all the bad news in march really depends on Consumer Spending. Income is rebounding, Consumer Spending rebound cannot be too far off. This job number was 100,000, i couldve picked up 20 economists on wall street who would tell me it is ok because we are expecting this. It is ok because this is jobs growth. Why is it always ok . We drop to 98 and then the narrative was it is ok. Why cant the opposite apply . If we are at 211, the anomaly is the 98. Not the 211. We have been doing this for a while now. Why are we near near employment . 79 is not good enough for the economy. If we are at 100,000 or better that is probably adequate. Print, puts us right back in line with the pace of hiring being just below 200,000 per month. That is the sweet spot. It has for real for almost eight years of the cycle, so this the same, not of only in terms of hiring but also wage pressures. We are not getting the Wage Inflation yet in the economy which tells you the fed is not too far behind the curve. David which is what i want to ask jurrien timmer. Wage inflation at 2. 5 . I dont think anybody would expect we would be adding 200,000 jobs and only raising rates that must. What does that tell an investor about where we are headed . We are still somewhere in the mid cycle, maybe in the later part of that, and we are not in the overheating phase, if you will. The numbers are still good. Core pce, the number the fed looks at, is still below their target of 2 . Down, theil prices headline numbers will have downward pressure as well. It puts the fed at ease that i dont have to go to aggressive and i dont have to challenge if you will. S, it is a delicate balance. If the fed goes too far and raises rates too far too soon, we could end up with a scenario that we have seen through countless cycles, where the fed raises rates so much the yield curve inverts and nine months later we are in recession. The longer we can keep this goldilocks environment going, the longer the Business Cycle can extend. We are already eight years in. Maybe it will go a couple years longer. Jonathan how many times have we heard goldilocks . Jurrien timmer, thank you. Always good to get your insights. 12 minutes into the session. Andres were pretty stable positive on the s p 500. We are up about. 1 on the s p. Down by about. 1 on the dow. Treasuries look like this. 2. 35 on the 10 year. The euro is down by. 1 . From new york, you are watching bloomberg. Coming up, White House National Economic Council director gary cohn at 10 30 eastern time. David this is bloomberg. Im david westin. Oil took a plunge yesterday although it seems more stable today. Earlier we spoke to ed morse and we asked him whether it was the fundamentals or technical circumstances in the market. Technicals,l nothing fundamental, nothing has changed in the market. It is expectations in part, technicals in part and then all of a sudden the market got bearish, we had a record amount of trading for a couple of minutes, record amount of open interests, and it was all shorts coming into the market. David still with us is jurrien timmer. Stonelly dropped like a yesterday, very short control of time. Jurrien ed is a very smart guy and he is correct. There are a couple of things going on. Ctas and others, including index swappers every friday they look at the data and you can let them the moves in crude oil pretty closely with changes in net long positions in the futures market. I think that is what is driving it. These markets have become so small, a couple hundred thousand contracts can really drive this market. Part of it is the decline in oil, a sympathy trade with the decline in metals here that is part of this notion that china is now tightening after a very strong relation. Maybe the bloom is off the rose there, which i dont really agree with. So i think it is mostly technical. I think the longterm outlook for energy is still bullish. Generally, investors are skeptical about the sustainability of the earnings side. A year in three months ago, the forward earnings estimate in the Energy Sector was falling at a 60 annual rate, and now its rising at a 90 annual rate. From just a0 delta year ago, so probably investors are questioning whether it can be sustained. Jonathan why are we seeing a blue through from commodities to bonds, from commodities to elsewhere . The only bleed through i is from commodities to fx. We are not seeing it in stocks more broadly come in the bond market. Treasuries yesterday, while treasuries were yielding over, they were going higher. What explains that . Bonds are driven by the u. S. Cycle and how many fed hikes we will get. If you line of the number of fed hikes the market is expecting, which you can get by looking at the forward contract on the fed funds rate, it lines up precisely to where the 10 year yield is. Right now if you add up to three hikes to where we have gotten to the three and a half hikes the market is expecting over the next two years, it explains where the 10year is. That is the only thing that i think is moving bond yields now. Littlefx side, on a puzzled as well. The dollar is trending lower, which is something i have been expecting for a while. I certainly would have expected commodities to do better. Again, the futures side, because it is technical, that is why there is less bleed into other markets. My favorite Commodity Index is the cr be raw industrials index. It is trading up a little bit but that continues to be in an uptrend. There are no derivative contracts on that index, so its a pure play on Global Supply and demand. That still looks pretty good to me. David that is oil, what about the metals . We also talked to ed morse about the medals. Iron or particularly, there are fundamental driving it, particularly having to do with china. Do you agree with that . Metal side, the copper, iron or, is all about the sense that the chinese are peaking again and the central bank is putting tightening on the table, there are a lot of doubters that china can really keep refleeting at infant item ad infinitum, and the bloom is off the rose on china. There has been a lot of speculation within china. Chinese people only have so many places to put their money. Immediately you get these big speculative runs and now we are on the other side of that. I would agree with that assessment. I do think china can probably keep this thing going longer than people maybe think. David jurrien timmer, you will stay with us for another segment. Coming up, fresh reaction to the monthly payrolls report from the white house itself. I will be speaking with National White House Counsel director gary cohn at 10 30 eastern time. This is bloomberg. Decision time in france. The president ial election draws to a close this sunday. Polls point to a clear victory for emmanuel macron, with one poll saying that he will catch six or 2 of the vote. Markets are cheerful, pricing this in. The gap between the germany and french tenure yield increasing. Still with us is jurrien timmer. 43 basis points is the spread currently. We have come down from close to 80 in february. How much juice is left to be squeezed, how low can we go, can we go back to the 20 basis points we were at a year ago . Its possible. From where im sitting, i think it peaked at 85, 88. We are at 44 this morning. That is about the range where we are normally at on that spread. There are questions about whether macron, if he wins, which seems likely, whether he can really govern in the way he is proclaiming. Maybe that is true. Im not quite close enough to the election to really have an opinion on that. From my point of view, the election was basically over during run one because that removed, assuming the outcome comes in as the polls suggest if there is one thing we learn from the first round, the french polls are pretty dim good. If that is the case and it is a consensus outcome, the Systemic Risk to the markets, which was a euro breakup, has been removed. Or most investors, that is the most important thing, i think. It allows europe to catch up to the rest of the world, especially the u. S. Come in terms of its stock markets. Europe has a tremendous pe advantage, trading at about four points lower than the u. S. And is much lower in the cycle, so it does not have the light cycle headwinds. I think europe could be the sleeper hit of 2017. Jonathan the conversations i have witnessed on various tv channels around the election, they usually skip forward to the parliamentary elections. They just skip past the second round. Wiseme an idea magnitude how big of an upset this would be on sunday, hounding the tail risk is for the markets, it what it would mean for european equities, for the euro, for the bond market . Jurrien and there is a victory by the pen . Jonathan exactly. Jurrien my understanding from looking at the polls and opinion surveys is that the vast majority of the french people are proeuro. I find it hard to believe that a would have enough seats in the National Assembly to even get a referendum going to i believe it is the parliament that needs to actually put that fourth. Then if you dont have the people on your side, it will not happen. My sense is if she does pull out a surprise win and the polls are proven incorrect, that the market obviously will trade lower, you will see more volatility, but i would probably be a buyer of that weakness because i do think, if she does not actually let france leave the euro, it will be a buying opportunity. That is minus five or minus 10 or 50, nobody knows. Jonathan jurrien timmer, thank you for joining us. Be sure to stick with bloomberg. We will bring a special coverage of the French Election on sunday. Myself, tom keene, and francine lacqua. On monday, a full list of guests to react. David westin, you wonder how messy the politics will get in europe. The European Union commissioner gave a speech in italy the last 24 hours not in english but in french. He said english was becoming less important for the region. He also said they wanted to communicate the speech to the future of europe, the rent people themselves. Jonathan going back to the 19 century when all diplomacy was done in french. Good for france. Lets wrap up the markets. In the early part of the session, we are down 24 points. We are up. 1 on the s p 500. Thank you, happy friday. You are watching bloomberg. Vonnie it is 10 00 a. M. In new york and 10 00 p. M. In hong kong. Im vonnie quinn. Mark an eye mark barton. Welcome to bloomberg markets,. Vonnie we are going to take you from new york to london. Arising with the dollar on a stronger than forecast april jobs report. We will examine whether opec is running out of options. We are going to head to the Trading Floor for answers. May seems to be on course for a sweeping victory in that months election, and now they warned bank should prepare for a very hard brexit