tom keene in new york. there was a big surprise from the boe yesterday. tom: i have to tell you, and we will show charts, yields speak to the tensions out there into this morning's jobs report. francine: they certainly do. then we will go to the boj. let's go to the bloomberg first word news. more on today's jobs report. the government will issue another solid report later this morning. 180,000 increased by july with the unemployment rate falling to 4.8% from 4.9% in june. fornumber of people higher permanent positions in the u.k. slumped the most in seven years in july, according to a report improvementd the federation. they are calling it a dramatic freefall. the bank of england said the outlook good weekend markedly. in south africa, the chief whip of the ruling african national congress said the party conceded defeat in nelson mandela bay. that includes the city of port elizabeth. 98% of the vote counted, nearly 47% of the vote, to 41% for the anc. they are poised to lose control of johannes berg and the capital city. the opening ceremony of the rio olympics games taking place today after terrorism threats, zika-carrying mosquitoes, athletes kidnapping, don't think candles, and infrastructure scandals, the acting president will launch the event. it will feature highlights including somber -- mbaber -- sa dancers and gisele pugin. we have some bloomberg charts for you this morning. futures advance. the yield. steven major will join us from hsbc in a moment. oil is churning after the visit to $39 a barrel on american oil earlier in the week. the vix shows the lethargy. where the dow is. higher.should be 12.13 shows the complacency, the gentleness of this august market . the two year yield is flat-out stunning. there is no other way to put it. from .67 2.65. look at the year in revisiting. that is maybe the lead item at this moment. francine: i really like that. as i was going on-air air and hour ago -- awould say that markets are little circle. it is the return of the bullish sentiment, the return of the boe. this means that european stocks are heading with her biggest two-day rally in 3. that.o knew i do not know if it explains, fully explains, the market sentiment today. european stocks are higher and banks 0.8%. tom: why is francine so nice and you are so miserable is the i get.one mail the number two is inflation in the mailbox. look at the chart that i invented. it tells the story about our audiences on radio and television live. these are wages and benefits growth taking out service sector inflation. or core cpi, taking out core service sector inflation. what you need to know is that in the previous decade there was a real bout of real wage and benefit growth. it ended because of 2 moving parts. tested wages, and particularly low inflation. wages, and particularly low inflation. that gives you a wage and benefit decline when you only look at service sector inflation. francine: i like that chart. i think the u.k. economy when it comes off of the wage growth mirrors the u.s.. on this occasion it is a little different. i will get stephen majors to do some of my charts. what i did this morning had to do with treasuries, and how much foreign central bank, treasury central -- treasury foreign central bank balance. securities held in custody of european central banks. 2015,e lower than early almost at the level in 2014. what does this decline show? central banks are burning reserves or that they switched to a more reverse instead of treasuries. it gives us a sense of how children banks are looking at treasuries and what they want to do with them. the u.s. jobs data, treasuries, the outlook for inflation in general. let's bring the head of hsbc head of fixed income research, steven major. it is always an honor to have you on on jobs day. a lot of volatility in treasuries. traders are betting more that the fed will not raise interest rates. steven: the way that the market is no change for months from here. the first move is september 2017. the concern that i have is that we need to somehow separate more considered response to recent events from the knee-jerk reactions. i say knee-jerk reactions, because you are having a lot of that. you have had the brexit, the rejection over the bank of japan, the bank of england rate cuts -- we have to think calmly through this. the bond yields have been low for a long time. they are already low. they are telling you something. whether or not we need to be pricing in lower and lower yields from here, i don't know. we may have gotten to the white where yields are low enough. we are at the point where i thought we would be a year ago. francine: you were the only one that got this right. steven: i'm taking my time thinking through this. i do not think just because you have had a rate move from the u.k., the measures from the u.k. bank of england, there is likely to be some more i will not slash the u.s. forecast. francine: was that a knee-jerk reaction? steven: the knee-jerk reaction on brexit to treasuries to 130 and we are toward 150. that tells you what i'm trying to say. it seems to me that the market is rejecting these very low yield levels. it will be a struggle to pull them lower. , good morningjor and congratulations on your call. we are to have you on the american jobs day. i like your phrase, "they are telling us something." chart it at the dots is extraordinary the distance between the governors, presidents, vice chair, chair, and markets. steve majors on the red line with james bullard. dots.2 lower which of these 2 lions gives way over the next six months? steven: clearly, the upper half is coming down to something more realistic. i think that there is a certain amount of hubris in the longer-term dot forecast. they have always relied on a reversion to the mean. since when was that ever a good analysis? later. will talk yields you say that you are hesitant to lower your forecast. 150, a 140 or a 145? will be athink we 150 at year end. it is quite possible that we could go 10 to 20 basis points on either side of that. i think 150 is the right number for the end of this year. tom: steven: darting strong on jobs day. he is with hsbc. abby, we will be joined by joseph cohen on bloomberg radio and a conversation with william gross of janus capital. bill gross after this morning's jobs report. this is bloomberg, stay with us. ♪ ♪ francine: i am francine lacqua in london. tom keene is in new york. rbs shares trading lower after a bigger loss than estimated. it is owned by the government, the majority owned by the government, it comes after the boe cut interest rates. governor carney said they had no excuse not to pass the rate cut on to customers. stephenson about the tough conditions to lend. >> every think is different. for us, it is more of a demand problem. it is not a supply problem. for some of the other banks, the lending facility. >> will pass through the quarter percent cut? all ofill look across our asset and liability products and do what we think is fair and reasonable. >> the governor made a clear message, you have no excuse. you will pass it on. >> i will not commit that we will pass it on, but we will look at it. >> the one thing that came out yesterday was that we are heading to a zero interest rate, potentially, in the u.k.. how are you going to deal with that? how are you modeling, preparing, to deal with 0%? are you getting ready to charge the customers? >> there is a change in conditions. we are at least putting ourselves in a position that if we needed to, and we hope we won't need to, to be able to look at how we get to a fairer balance between customers and asset customers. dropped 80 billion pounds noninterest bearing on demand. that is a tough place to be in a zero interest rate environment. i think that we are headed into an environment that is structurally lower in terms of profitability for the large u.k. banks. it is going to make it harder for subscale challenger banks. francine: that was the cfo of rbs. wrote a fictional letter where he imagined that the banks might say to mark carney at the end. it is one of the funniest things i've read this week and goes to the point of how u.k. banks deal be doing,eed to because of the lower rates. he writes, the problem is our customers. this is the bank writing to. after brexit come they weren't interested. i lending growth is going nowhere, and we thought you should know. congratulations on the piece. it is a light read that goes to the heart of the matter. the banks have our interest likely heard from the cfos. they are happy to land, but there's not enough demand. steven: it is also a question of cycle. you k bank lending was healthy going into the brexit vote. house prices were at a record high. you have to wonder what it demand, impacts, have we seen from the referendum, and what are we trying to support? i sympathize with a say if demand and confidence is the issue, i'm not sure the rate cut is the answer. tom: if it is not the answer, and i thought the debate was extraordinary, it seems to be the mystery of whether inflation. is that how you read it that if byhave demand dynamics that the end of next year is that we don't have a clue or u.k. inflation is going? absolutely. we do not even know what the impact of the referendum has really been. if we imagine that there has been a hit to confidence and demand, we are unleashing the kind of measures we have seen in the eurozone, which has a completely different dynamic, and that is from lending growth and record high housing prices. means. sure what this is it ahead of the curve coming behind the curve? i think that banks are worried that whatever we do we are still going to be headed toward zero rates id and of the year. tom: what is the hsbc call on inflation? atch was on yesterday with stunning 3.1% inflation for next year, beyond where governor carney is. steven: our economists have a number of 4% for the end of next year. -y.t is quite go cable down at 120. on that basis, if you thought inflation could get as close as 4%, you should be buying inflationary problems. at one-year forward is 3.1 for the u.k.. the market is not pricing and at inflation rates anywhere near 4 next year. it is very difficult. clearly, the bank of england does not have any control over inflation. it would be hubristic to suggest any central bank has control over inflation. we are a small open economy and we cannot control the oil price, for example. francine: an open economy for now. steven: open at the moment. open for business, apparently. we have a small economy driven by global trade. we do not have any control over the inflation rates in many ways. francine: they are it is letter to the customer saying, watch out. this would be a nightmare for u.k. thanks. lionel: to be honest, we are not there yet. we are seeing banks very anxious about .25. we are not there at negative rates. we have seen pain from the euro banks. if you sell other kinds of products, you can raise prices, but we are not there yet in the u.k. francine: in the fictitious :etter, you finish by saying ps have you spoken to the treasuries? is this the right way? steven: everywhere, they're talking about loose fiscal policy. the fiscal impulse for 2016 is still for tightening across the globe. for 2017, if enough countries are moving toward loosening, we will get a different outlook. the numbers, so far, have not been impressive. i will give you an example. the japanese government announced a 6% fiscal loosening. 6% of gdp. if you strip out what had already been announced it was 1%. that is not impressive. one thing i noticed was the speed with which mr. hammond, the chancellor, made comments at the end of the announcement. it was six minutes. francine: also on twitter. it was 4 minutes. steven: some is logical because the government has to authorize the asset purchases. england and the government are working closely. i wonder whether the u.k. could be perseid here in the steps that we see in the coming months. the is regarded with government and central working together, fiscal loosening. question of the q&a yesterday were clearly on things like negative rates. money.licopter you can see where the debate is going. tom: quickly, let me bring up this chart. the idea of getting from here to there. deutsche bank at the bottom. jp morgan at the top. lionel, it is friday, august. we are all relaxing. cryan going to get this thing going? lionel: i remember in february when they were talking about deutsche bank, saying it was a lowest price in decades and it was a massive crisis, it is six still at and we are very depressed levels. if you are a ceo, all you can do costs and pray for some act of god. some economic upturn. some improvement in the outlook. this could keep rolling. francine: thank you. we will be back with steven major in a couple of minutes. we are also talking about boj. it is not only the countdown to u.s. jobs data, in rio it is the countdown to the start of the olympics. will it alleviate arson joint problems facing south america's biggest economy? this is bloomberg. ♪ ♪ tom: jobs day, bloomberg surveillance, bill gross later. abby joseph cohen white will join us on bloomberg radio. we digress. we aree: we digress, but talking economics. we picked out something on bloomberg that relates to the olympics. it kicks off the season. the contributing writer for bloomberg writes, their punishment has already been dished out. but the article is based on, they look at the olympics and they say the proponents of the olympics will not be there. the godfather of the olympic bid would be the it coordination of brazil's rise to greatness. will behe nor rouseff in the stands. it goes back to a serious point. if we look at the challenges of building stadiums, the olympics, the challenges to this economy -- we have been covering it for the last year and a half -- has been incredible. unemployment and inflation have almost doubled. tom: you talk about the past for brazil and the leaders, i wonder if the olympic concept has passed. it is nothing like the buzz that i remember 15 to 30 years ago. it used to be a huge deal. a hugee: i hope it is deal again. it is one of the greatest sporting events where countries come together. a moment where a lot of countries are moving away from globalization, it is an important reminder of the world we live in. we will be back with steven major. this is equities in europe. this is bloomberg. ♪ ♪ jobs day, bloomberg surveillance, francine lacqua in london, i am in new york. all that i care about is the pole vault. it is eight days from now and will be on for 4 minutes. i have never done it. have you ever done it? francine: i will have to look it up. tom: let's look at another set of polls with taylor riggs. democratic presidential nominee hillary clinton extended her lead over republican rival donald trump. a new poll shows mrs. clinton with a nine point lead, 47% to 38%. in july, the same poll had her leading by five points. the latest full has a margin of error of 3.5%. it looks increasingly likely that the obama administration will hit it's a goal of admitting 10,000 syrian refugees before the end of september. 2300 and i last month, more than the previous seven months combined. bracing for the possibility of economic retaliation from china. korea international trade association, an influential business lobby group, identify 26 measures in place by china that hurt members. any could be damaging. have fallen exports 19 months in a row. australian state governments will change laws to keep higher risk people convicted under terrorism in prison after they served sentences. it could apply to 13 prisoners serving long sentences for federal terrorism offenses after several plots were supported in sydney and melbourne. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm taylor raikes. this is bloomberg. francine? francine: it is jobs day, the monthly report out in three hours. our next guest says it should be fairly symmetrical to an upside or downside. adam cole joins us from his office. stephen major is also with us. also with us. is the dollar is calm at the moment . is this because we had such a correction in rate expectations on friday? adam: yes. i think the market is reasonably priced. 50% or so probability of the move this year. i think the risk in payrolls is quite symmetrical around that. for choice, if i had in the payrolls i would reach to the downside for the dollar but not by a large margin. francine: how many interest rate hikes, if any, are you expecting from the fed this year? the first move, given the global environment, the first move. be until the middle of next year. particularly when you combine the global environment with an uncertain political environment in the u.s., which could have a similar effect as the referendum in the u.k.. the fed has plenty of excuses to do nothing for the remainder of the year. tom: tell me about sterling as a one-way bet. everyone is on the weaker sterling bet. is it a big bet, little bit, normal that? looking at the positioning that we have, the market looks like it is limit short sterling. i think that is being reinforced decision yesterday. going forward, i can see the acting as a restraint on sterling keeping it in a tight range for the mid-term. i think the market will be right and we will get more easing. the risk is that we have another leg lower in the next six months or so. tom: this is the bloomberg volatility. it shows the massive one way bet on sterling. it is simple. is everybody looking for a weaker pound sterling. francine: i love those graphics. it shows you kind of the angst or comments that we are seeing in the market. looking at the pound, and we were talking about the only, was it -- we were talking about boe, was it going to go lower despite the brexit? can you call it bottom? steven: the bank and treasury want a weaker pound is part of the inflation strategy. they would rather have it not all up front in one go. there is a multitude of easing measures that have been introduced. it was quite clear that that was not the end of the rate cuts or the qe. it seems they will keep pushing sterling down. francine: what is your call on sterling? adam: we think the low will be 115. i that going forward, we are likely to see, in particular, the response of the economy, disappointing expectations. the much a rerun of response to the japanese economy to the weakness of the yen. tom: deutsche bank also at 115. 116en major, if we get a pound, that implies a certain inflation. will you explain what that does to your yield market and away from adam cole's fx market? steven: you are assuming there is a path that takes place. ours is 120 by the way on cable. our economy has a 4% inflation number next year. the four words is implying a number closer to three. that tells you that if it is successful and inflation comes through come the yield should be higher. the market is betting against the policy. if this was a banana republic we would say the central bank will blink and they will have to raise rates. i would suggest that the united kingdom is not a banana republic. is carney ready to raise rates for 4% inflation? of the the stated aim bank of england and the fed get behind the curve. they want the inflation to run hot get behind the , and they will hike into a higher inflation environment. they would rather be behind the curve. i think it is a considered strategy. francine: what a jew make of mark carney? she went to paint saying that the country will not be hit by negative rates. he seemed cautious of the outlook. is there a concern that the market turns around and says the fact that he is done so much in qe so soon means it will get worse than we thought? adam: i think we need to wait and see. bear in mind that we have had not a single hard activity data point post-referendum. the duration of the qe program is longer than most expected means that we go through a long time where we look at the q3 and q4 areow before we get a big moving markets or expectations for another round of easing. from my perspective we have a of range trading and range bound markets. tom: is it a range bound dollar? 57%. it has been in a range, range, range. do we break out of the range? i have a lot more individual views for currency pairs against the dollar than the dollar itself. rates expectations ago, it will be a fairly tight range over the next 12 to 18 months. byoutlook is dominated specific currency views on the yen, sterling, euro, rather than by broad sterling direction. tom: i have to ask you about canada. it is the royal bank of canada. many are looking for oil stability. if we get oil breakdown, does money move? fight that hard to correlation. it works because all of the drivers are correlated to oil. central-bank policy is very responsive. we know that there is also a general risk appetite. if that were to be the scenario, if that were the case, it is hard to fight that correlation. that is one of the plays in the markets. francine: what happens to the euro? adam: we have a bias to the euro falling, but not aggressive. going forward, we see every building a political risk premium, not to the degree that we saw in 2012. a bias toward the lyrical risk premium building. another bias toward the euro trading lower. thus he that is a bias toward the euro in a lower rage, nonaggressive, from here. francine: steven major i'm looking at the bloomberg terminal. there is a story that came out half an hour ago saying merkel's approval rating plunged following the attacks in germany. she is at 47%. that means that her approval rating slumped right 12 percentage points. is there a risk, when you look at risks in europe, is the biggest risk that angela merkel may step down? steven: there has been a trend toward more populism coming through an election results and referendum results around europe. germany is not immune from that. one of the points that we are picking up is that there are many people that have not benefited from globalization . the question is, how do you address that? if the established politicians like mrs. merkel and others are not doing anything to deal with it is franchise, we have a problem. -- with the disenfranchise, we have a problem. it is not just the u.k., italy, or spain, it is also germany. tom: adam cole, thank you so ,uch for joining us particularly on pound sterling. on bloomberg radio, bill gross, alan krueger will stop by, abby joseph cohen. i cannot wait to talk to her about the interesting tight range bound equity market. jobs day, stay with bloomberg. ♪ tom: jobs day, we are thrilled you are with us. alan krueger is with us this morning. with francine in london with hsbc. we have been talking yields. bring out the chart. a lollipop chart. those are the fed meetings back 18-months. there was a trend until everything fell apart. somewhere in the vicinity, steve majors said we are going to 150 in yields. at the bottom is 4 standard deviations off of trend. we went there with a sigh of relief. where the ugly orange arrow is, it is a big ugly orange arrow, it shows that we have reverted back to low yields, haven't we? steven: yes. this is implying there is no move from the fed. the futures contract is saying out to 2017, but the two-year is more all-encompassing. it is suggesting the next jump in the next two years. things have gotten really bad. a lot of that is due to the international picture. what you're saying from the bank of england and elsewhere. also the view that the fed cannot hike. if it did hike, it will not stick. the market is also thinking that if the fed were to hike september or early next year, it may need to be reversed within the two-year period. tom: stan fisher wrote a book out of the 1998 crisis. they were overcome by events. alan greenspan talks about how the investment in the u.s. brought down the yield and created a large part of the housing issue. let's go to the 10 year yield. from the two-year yield to the 10 year yield. there is the steve major rally. no price higher yield lower. you are saying there has to have massive international ramifications. steven: the trend of falling yields has been going on for the best part of three decades. the real rate and g4 has been going down since the 80's. that has to be telling you structural and secular forces are at work. it is not down to cyclical patterns that economists are looking at. one ofuctural story is the get overhang. if someone could convince me that there was a strategy in place to deal with the debt debtang, that is the out there in the different sectors, if someone could convince me there was a strategy in place, i would maybe change the yield forecast. as always you have the debt overhang it is difficult for central banks to put rates up. people keep missing that simple point. at thee: when you look yield on negative territories, it goes back to anything below the yield is below zero. will this change? aeven: there has been tendency for many and markets to dismiss switzerland because it is too small. i think in many ways this has been quite pricey at. -- quite pricey at -- quite pressiant. went tocy rate -75 and money markets to -150. i tell people that private banks in switzerland are offering on cash deposits. even lower than the official sector. there is nothing wrong with that, it is just market forces. the deal leverage actually happening, each year that goes by with bonds at -1% you are reducing debt from 100 to 99. that is exactly what is happening. i think the negative rates and negative yield curves get depressed because people get very emotional. all it is telling you is that the debt overhang is being dealt with through market forces facilitated by central banks setting the correct policy rate. newtonianre going with the idea of forces. i get it. steve, when we get those forces m is supposed to be little. ma.s f= small are we going to get a smooth glide past and measured and controlled releases, or one ramon nuclear event? -- ramon nuclear event? event?monuclear steven: the idea that we have a benign path is optimistic. think back to the past few weeks. we are getting used to it. we had the brexit vote, the rejection of the bank of japan's policy, that is in the space of three to four weeks. we will get used to it. i'm surprised how low the volatility numbers are. that makes me feel very uncomfortable with the idea that you have a benign half. i think that negative rates are just central banks setting the policy rate in line with what they are supposed to. what if the mandate changed? what if there is a game changing event that resulted in the government changing the mandate? tom: the game changing event is that nbc will do the pole vault for two hours next saturday. francine, have you done the pole vault? francine: no. but we are doing newtonian mechanics on a friday. it is very punchy. .om: live rio sugar loaf mountain not in the background. i think that francine climbed the sugarloaf mountain a few years ago. coming up, stephen stanley amherst pierpont on the american economy. it is jobs day. ♪ ♪ jobsbloomberg surveillance day. that's get to our business flash. quarter profits on higher claims from natural disasters. europe's biggest insurer meeting its target. declining in june. investment goods between the euro area run-up to britain's referendum. that is your bloomberg business flash. francine: angela's approval rating is plunging. dropping 12 percentage points following a series of attacks that unsettled the public. let's go to berlin and caroline hyde. general in germany volatile, or is this a real concern for the establishment --t and mark airline: establishment? caroline: she now has a ranking of 47%. as she loses, her political adversary gains. ranking up another 11 percentage points in terms of their popularity, snapping at her heels. attacks,r wave of suicide bombings, machetes, you name it. tom: how is this folding it into the new debate on migrants and refugees? as angela merkel enters the autumn months? crucial because you are in an election ramp up as well. the next set of elections. immigration will be the key factor. that is the number one risk on voters' minds. it changes the element on how she distinguished herself. she commits to be open to helping migrants. today, she said that they still want to fulfill the humanitarian obligations. there is a rise in the popularity of anti-immigration policies in germany. it sets the scene for the political ramp-up in september when they all come back from summer holiday. francine: thank you. caroline hyde in berlin. steven major is there a successor to angela merkel? steven: that will be the question everyone is looking at. who was theught was winner in the polls? the answer was the leader in bavaria. will be thinking about this carefully. you and i know that for the last few months we have been looking at the risk around italy, previously around spain. the assumption has been that germany will be stable, holding it together. if this poll -- i've not seen the details -- but, if this poll is meaningful, markets might be worried about this. tom: thank you. we appreciate you getting us started this morning. he is with hsbc. we will company the headline data. we will do that on bloomberg radio. bloomberg television will have coverage as well. after the report, bill gross will join me. the conversation about the report and much more about the the american economy. we might helicopter in a debate on helicopter money. a beautiful new york on this friday. stay with us in london and new york. ♪ tom: it is jobs day in america. " will gog surveillance beneath the headline data at 8:30. this morning, yields drop ever lower. is there the anticipation of a week jobs report? recent polls from philadelphia to pittsburgh, the secretary crushes mr. trump in pennsylvania. good morning, everyone. this is "bloomberg surveillance ," live from our world headquarters in new york. it is jobs day. i'm tom keene. and team likewise with me. jobs day,oddest particularly with the backdrop of what mark carney did yesterday. francine: it is significant that a lot of markets are going on the back of what mark carney did, which is surprising but not that surprising. he just added a little qe that the market was not expecting. tom: it will be interesting to see. to brief you on jobs day, our "first word news" with taylor riggs. taylor: the federal government is expected to issue another solid jobs report this morning. economists surveyed by bloomberg estimate payrolls increased by 180,000 in july, with the unemployment rate falling to 4.8% from 4.9% in june. refugee party is being defended. slumped 12 merkel percentage points to 47% in july, the second lowest rating -- terror attacks have unsettled the opposition. according to a report by market andthe regroup in an plymouth federation, they are describing a drop as a dramatic freefall. it is indication the brexit decision will hold back economic growth. yesterday the bank of england said the outlook had weakened markedly. the opening ceremony of the rio olympic games will occur today. andr doping scandals infrastructure clashes, the event will be launched. three-hour show is expected to global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, -- i am taylor riggs. this is bloomberg. tom? tom: francine, you really wonder where we will be on rio and the limbic seen two weeks. you just wonder, how do we get out two weeks with what is going on? francine: i think you are right. if you look at the brazilian economy, it is a great way for investors to have a little bit of confidence given where they are. they just cannot screw this up. tom: let's look at equities, bonds, currencies, commodities. let's get to our two esteemed guests quickly. up 5, oil with a rebound two days ago. on to the next screen. yield, zero point 65, almost four standard deviations below trend. .60 five, almost four standard deviations below trend. francine? francine: overall we are looking at a lot of central banks. i want to pick up some of the moves. on stimulusdvancing hope, on the back of boe or to we can see the pound versus 131.25. tom: how about wages and benefits, x service sector inflation? we get a ton of mail. why isn't carl riccadonna on more? the inflation people feel. service sector inflation, 3.2%. core service sector. you do the artificial construct, take it out of wages and 5,efits, you get a massive 6, seven-year trend of wage deflation, given a high service sector. steve stanley, francine is looking at me like i am nuts in the head. francine: that does not happen very often, tom. it has something to do with treasury. the amount of treasuries held by central banks worldwide. a decline,there is that we may be back to levels we saw in 2014. that is my red circle there. but the decline does not necessarily mean central banks are burning reserves. they may have switched to a reverse rather than treasuries. a different way of looking at treasuries today. tom: very good. let's bring in two smart individuals to get you briefed on what we will see later. stephen stanley has been phenomenal about a measured and quieter view on american economic growth with were out of -- with work out of washington. and joining us, carl riccadonna from bloomberg intelligence. steve, let me go to you. what about the revisions this -- whatback up steve: about the revisions this morning? underlying trend has been slowing down a little bit. it will be interesting to see if -- i think most people are looking at the july number to give us a sense of what the trend is going to be going forward. carl, what is your insight? you always have something twisted. carl: i think a 170 estimate is reasonable as a forecast, and i agree with your sentiment. may benomy sputtering too strong of a term. he economy has had some real challenges over the past three quarters. growth is abysmal. and linkage between growth jobs has to hold up at some point. tom: everybody is up here, the dots. the market vigilantes are down here. carl: i think off of chair yellen's comments later this month, there has to be a big reconciliation where the dots are and the market is, and it is not happening with the market moving higher because growth is weak, job gains are slowing, and the fed will have to acknowledge they will have to be much more gentle. tom: let's bring in francine lacqua in london. aancine: i want to ask carl simplistic question which has been confounding the markets. what does it take for the w.a.r. p functions come of the markets, to reprice? , tom.wirp do we need two blowout figures for something to be back on the table for this year for the fed? carl: one strong jobs report certainly is not going to do it. ,e need evidence of sustained strong job gains and stronger economic performance. barring that, the market is going to continue to call the fed's bluff in terms of the tightening and what it will look like. francine: stephen stanley, is there a risk that the market is mispricing this? it happened once before, and then we had an emerging market temper tantrum. carl: even -- steve: bill dudley earlier this week said the market is not pricing enough tightening. given the fact that the fed has led us to water and then pulled it away several times over the last couple of years, the fed will have to bang the market over the head to price something in. francine: how many blowout numbers do we need from the fed? is it two or three, or is it because it is so volatile that it feels like we are going back to 9090, so the jobs data is unreliable? steve: we will need at least one or two more to the extent that the fed is not considered to be in play until later in the year. we will have to see a string of these numbers. tom: you called this a goldilocks report. you suggest consensus is looking for goldilocks. all my radar is up. who is knocking at the door? steve: we have had one bad one and one good one. most people are looking for things to settle back to "normal," so it will be interesting to see. if we get a number that is 200,000,0,000 to people will say that is the new trend. said nol riccadonna 6:08charts ever show up at a.m. nonfarm payrolls, the trend before the crisis, there is 200000 and the yellow box is the theoretical debate about what the new normal is. what is the new normal? carl: growth is downshifting the way we are seeing, and we are 2% growth.below i think we will see below 150,000 on payroll. tom: normal? carl: a quick however is, we are close enough to full employment here. even if we are downshifting, 150,000 is good enough. tom: steve stanley, is 150,000 good enough? time, yes, but we should be catching up, so to speak. if we see 150,000, that will be ok. wages will probably be accelerating. tom: what is your run rate on gdp right now? steve: in the third quarter we will get a rebound, but in general i think 2% is it. tom: steve stanley is with us. donna, thank you so -- mr. carliccadonna, thank you so much. we will be speaking with william gross. priced to on bonds perfection and on governor carney. good morning. "bloomberg surveillance." -- this is bloomberg. ♪ francine: mark carney changed the weather with his extra qe. -- i am francine lacqua in london. tom keene is in new york. both cities are gorgeous this morning. let's get straight to the "bloomberg business flash" with taylor riggs. weeks after the group -- the japan federation of higher -- toyota says they will have experimentation with automated driving technology. indonesia up a second-quarter growth the expectations come thanks to a government spending spree intended to boost an economy replica with a slowdown in china and low commodity prices. gop -- gdpics say increased 5% from a year earlier. the bank of scotland is posting a larger than expected loss in the second quarter. litigation expenses over a lawsuit over a 2008 share fail. as the u.k. economy begins to unravel after the brexit vote. that is your "bloomberg business flash." francine, you have more on rbs. francine: those rbs earnings came a day after the bank of england cut interest rates to a record low 2.5%. u.k.nor mark carney told banks they have no excuse not to pass the rate cut on to customers. for more on how the latest boe decision will affect banks, let's get to mark gilbert. great to have you on the program. we spoke to you yesterday. i was surprised that marconi was so adamant, saying we will not go into negative rates. the banks keep arguing they are not lending because there is no demand per he says there is no excuse -- there is no demand. he says there is no excuse not to pass it on because i have cut rates. mark: he got angry. when he was asked about banks, it was all most like he was staring into the camera lens and talking to the ceo's of british banks and daring them not to pass on -- they are behind. their business model does not work. the deposit account rates do not work. they cannot make money with rates this low, and it is not clear how they are supposed to stimulate demand in this environment. francine: let's listen to the chief financial officer of rbs. >> we are the biggest commercial bank in the country. we have seen a slowdown amongst a corporate customer base, stalling decisions to invest in people, and that has continued .fter the referendum vote on the retail side, we have seen a drop off in volumes since the referendum vote. there is definitely a slowdown going on. francine: let's take a step back. what is the problem in the u.k.? is it that banks are not lending or is it that there is no appetite for it? the officers survey, it has improved slightly, but you would not see the levels that you would normally at this stage. i do not have sympathy for banks like rbs, where the lower rates hurt them, but the expansion of business and volume might make up for that. it just is not happening. you an ideato give of something to write about because you will do this better than me. to preface this, the answer is no. bring up the chart. this is cable with everybody's consensus called on. with deutsche bank's actual call, it is down to 1.15. mark gilbert, is your lovely nation a banana republic? mark: the answer to that should always be no. soft power that the u.k. has been able to influence on the global stage, we have been punching above our weight for years. there was nothing wrong with having more modest ambitions. what we really need to see is not mark carney at the forefront, it is theresa may and philip hammond. we need to see action to drive the economy going forward. tom: let's rip up the script. what have you learned about how everybody including governor is, come on, which adults, let's get going? there is nowhere else in the world this debate will be more important than in london. mark: if you look at what is happening in japan, canada, south korea, we are starting to see more concerted action to have more fiscal stimulus from the government. in the u.k., there is a fantastic opportunity for that, probably with infrastructure bonds. tom: steve stanley, is this just helicopter money in disguise? whether it is a monetary policy and mark carney is pleading yesterday for fiscal authorities? steve: there are different things that you could expect out of fiscal policy p review could get the classic keynesian stimulus, which is what everyone is calling for. or you could get -- tom: what about a check in the mailbox? steve: we have tried that a few times. maybe it works for a month or two, but it does not have a -- itg effect here at does not have a lasting effect. tom: francine, mark gilbert looks like he's going out poll vaulting after the show. he has a look today. he is poll vaulting getting ready for the olympics. francine: a waistcoat is not error dynamic. -- is not arrow dynamic. tom: it is equities, bonds, currencies, commodities. it is jobs day, a quiet churn before a: 30 wall street time this morning. stay with us this is bloomberg. . ♪ tom: it will be an interesting jobs day. to begin with, the two-year yield is extraordinary, how it has come in. there are distortions within the lethargy, as we go to h: 30 this morning. -- to 8:30 this morning. a huge deal in your intellectual corners with the atlantic council. policymakers at the imf missed the forest for the trees. aslund iss scathing. this is an important discussion, not only about the imf, but what the role is of institutions. steve: you have the imf bailing out countries in europe that have been considered part of the developed club up until a few years ago, so it is a matter of, are we going to bailout every country in the world? at what point is it going to get back to being more limited. tom: the idea of the imf treating those developed europe countries totally different than the broader third world conglomerate. francine: the problem is that hindsight is always a great thing. hindsight makes it so much easier, and then you look at the systemic risk and whether there is something that would have for the euro to fall apart. now there is investigations about the imf and the treatment of greece, the way they botched to job in their analysis. but overall, they could have just ignored it. steve: that is true. the question was, who was going to be responsible for that situation? itselfotal to be europe doing the bailing out, or was the imf going to get involved? obviously the imf got involved, and there is still a debate about whether that is the right decision or not. francine: what is the right decision going forward? do they need to step away? steve: the big issue in europe is that there are structural reforms in a number of those those economies that need to happen and that had not happened in most of the big places. you look at the contrast between spain and italy, where spain has undergone a lot of those structural reforms and their economy is growing pretty fast, whereas italy is entrenched with the influx ability they have always had. tom: i want to get back to jobs as the we -- as we drive forward. there is this crushing reality about successful america. you have been a great optimist on what we have done, and that comes into play. this chart is the most optimistic chart i have in the bloomberg. fors claims adjusted employed. we have never been here. why are we so miserable about the jobs economy when this chart is the most optimistic chart i have back half a century? of layoffs ise incredibly low and has been for two years, so a lot of people have gotten used to it. it is extraordinary. tom: does it speak of two americas? steve: the issue with the labor market is not so much the unemployment situation but it is the weight situation. we have charts on that as well. steve stanley with us. we was so that we will show some dynamics as well. next, alan ruskin of deutsche bank. 1.15l for a pound-sterling. it is jobs day. ♪ francine: these are live pictures of rio digital narrow -- of rio de janeiro in brazil. nicean see that it is a day. the festivities to kickoff the only banks -- to kickoff the olympics starts today. let's get more on "first word news," with taylor. starting with the opening ceremonies of the rio olympic games taking place later today. after terrorism threats, zika-carrying mosquitoes, doping scandals, and infrastructure collapses, michelle tamer will officially launch the event. the three-hour show is expected to include highlights including supermodel gisele bunch and. obamaks likely the administration will -- state department figures show more than 2300 arrived last month, more than the previous seven months combined. total admissions for the current budget year are 7900. new revelations about the missing malaysian airlines flight 370. malaysia is acknowledging for the first time that one of the plane pilots had plotted a course on his home flight simulator to the southern indian ocean where the missing jet is believed to have crashed, but an official says there is no evidence the plane was deliberately crashed. democratic presidential nominee hillary clinton has extended her lead over rival donald trump. a new poll shows her with a nine -- 47% to, 37% to 30 38%. they can -- the poll was conducted in july. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. francine, i cannot convey the last number of days how original american politics has been. if there was one poll overnight, it was pennsylvania, where secretary clinton does better than good. and that distance from philadelphia, pittsburgh, is evident of what mr. trump has to try to a cop as fast. francine: i am trying to keep up .ith who is endorsing who it just seems messy. even purple hearts came into this. tom: somebody had a great retake and went back and listen to the first reagan debate 35, 36 years ago, and it is like from another planet compared to what we will see in the debates. it will be an eventful weekend. it will be an eventful jobs day, and the backdrop is extraordinary economics, finance, and investments. stephen stanley with us, and we are thrilled now to bring you the guy with the most important sterling call on the street, and that is alan ruskin. i have to rip up the script. hassche bank, "the journal" a great chart of it today. you have an outlier one -- and outlier 1.15 call on the sterling how do you get there? alan: it was made off of brexit. tom: people are catching up with you. the pound caught up with us initially, and out has stabilized. the three main elements were the bank of england, which a lot is priced in there, something like a seven-basis point low on yield on short-term rates. then does the fed come into play, really? tracking around 7% of gdp, primarily financed by foreign direct investment flows, it should be going the other way really. that is going to be the kicker. ruskint's bring up the chart right now. we thank carl weinberg at high frequency economics for the initial chignon city -- for the iosity on that. there is that money gap of money flowing in. does the investment attraction of a 1.15 sterling mean money flows into the united kingdom? alan: eventually, i think that is right. oddly enough, we have seen all the talk about a large inflow that has taken place right now. right now there is a little bit of a benefit -- of a buffet from that. tom: i keep going back to wells fargo and their acquisition of that property in the city days after brexit. francine: the problem is that you either see the u.k. flourishing in a kind of swiss of modelnorwegian type in agreement with eu. when we heard yesterday is that mark carney will be able to avoid a recession for his country or not? alan: it sounds like we are edges of what the might constitute a recession, something around 0% growth. that is not great in the context of the scale of the stimulus. but you're getting stimulus on the bank of england rates as well. guilt markets are very well written -- are very well behaved. there's a push to support the economy at least for next year. francine: what is the one thing we learned from mark carney? he does not want to go into negative rates. will he get the support from the government in terms of fiscal stimulus? that he heard yesterday will indeed get some support on the fiscal side. there will be a turnaround as well. everything i just said to you in terms of the financial conditions for monetary policy. tom: steve stanley, alan ruskin mentions janet yellen's place. not only is she the central bank or to the world, is she the united kingdom? steve: indirectly. they need the currency adjustment to make up for -- tom: what is the process to help chair yellen help mark carney? steve: what would help in terms of getting to the exchange rate forecast is for the fed to move higher on rates. tom: money comes into the united states. steve: right. the fed has been so skittish. the question is, are we going to get kind of a stretch of time where there are no big shots? tom: you and i talked about this before. the fact is we are massively ultra accommodative, right? alan: it is a two-way street. these are the large central banks. they are asked and the balance sheets -- they are expanding the balance sheet rapidly to the tune of over $2 billion per annum. it means the fed should be doing more heavy lifting at the front end of the curve, but that is not the way the fed sees it at the moment. smartest what is the move on the currency markets right now? alan: we will have to wait for the payroll numbers. the as-expected data is seen as a lowball sort of environment, one in which currencies likely , for example rupee -- will do well as expected. payroll numbers of over 150 k, that will affect the fed far sooner than markets pricing in. i think in the short-term, the markets are going to take 150 k numbers and say we still have to wait for another number before the fed acts. tom: bring up the chart. alan ruskin mentions the brazilian real. on, alan, this is a banana republic. of massive lula appreciation brazil. been one train wreck after another for this beleaguered nation, has that? alan: i don't think so. you have a long run chart there. tom: bring it up there. a massivet is depreciation of the brazilian real. alan: it is a sprint uphill there, tom. there was a period of extraordinary weakness. the idea of a brazilian miracle, where some people saw maybe in 2011, there was a chinese-led commodity boom. i would not single out brazil particularly as the only country that has been subject to that rethinking. tom: bill gross talks about where the locomotive -- what are we, the cleanest dirty shirt, or the dirtiest clean shirt? the other one is we were the best horse in the glue factory. tom: is that where we are right now? great, butth is not it beats what we see in a lot of our trading partners. tom: coming up on bloomberg radio, on the equity markets, a little bit of quiet in the s&p 500. .bby joseph cohen 8:30london and new york, this morning, jobs day. this is bloomberg. ♪ francine: this is this is bloomberg. "bloomberg surveillance." let's get to the "bloomberg business flash" with taylor riggs. elian's -- allianz -- ensure up -- insurers in europe are under pressure for quick investment returns with typically providing the buffer for earnings when claims rise or prices for coverage decline. german factory orders unexpectedly declined in june as investment goods from within the euro area slumped in the run-up to britain's referendum on eu membership. in may.ell .4% that is the third straight month demand remained below estimates. that is your "bloomberg business flash." francine, you're keeping the focus on germany. francine: we certainly are. angela merkel's support has dropped 12 percentage points in a new poll following a series of attacks that unsettled the public. alan crawford joins us. about chancellor merkel? can she regained popularity, or do we have concerns about whether she needs to step down in the next 18 months? i think she is not going to step down. certainly she will be dismayed by these latest statistics. the opinion polls had started to show that her popularity was climbing back up again after the -- after this year, and with the refugee crisis. knowing that is back in the limelight, she is suffering again. so, yes, she will be very unhappy with these numbers. does it indicate she could do a reversal on her immigration policy? alan: no, she gave a very feisty performance at her press conference before going on vacation last week, where she basically said she is not returning. it is not as if she has not done anything, but in fact the numbers have been curtailed dramatically. there are both things out of her control -- the closure of the balkan route from austria into germany -- and she was instrumental at cutting this turkey,ween eu and which was controversial but appears to be working. tom: who is your substitute? everybody is replaceable -- who is her substitute? everybody is replaceable. who replaces chancellor merkel? alan: the most popular alternative is wolfgang schauble , the finance minister. he helped negotiate german reunification. he is usually respected, but the key point is he has backed angela merkel 100% so far. so really there are no obvious contenders who would succeed her at this point. francine: thank you so much for the insight. alan crawford, from our berlin office at he is the bureau chief there. this is a picture for global stocks advancing. metals gaining. this is on central bank stimulus measures speculation. the markets believe there will be more that will support the global economy. in the u.s., it is jobs day. this is bloomberg. ♪ francine: welcome back. this is "bloomberg surveillance." you are looking at live pictures of the stadium in rio, where the olympics kick off this evening. has is an economy that basically been on their knees, who clinchedeople the x, dilma rousseff and lula, will not be attending because of troubles. tom: off the sterling news yesterday, we had a 100 handle on yen earlier. euro-yen showing strong yen, with the, and sterling, nothing going on. something on "bloomberg " this morning, alix steel and david westin have allowed jonathan ferro to join them for the jobs report. jon: it is a one-off special. who do you think makes the decision, tom? tom: what do you have this morning? jon: we will do the bonds market, with mohamed el-erian and rick rita. now you have the blackrock head of global fixed income. and this delicate dance we've experienced down in kruger, the princeton economist, the labor market guru. let's go right to glenn hubbard there as well. let's get right to our single best chart because of time. alan russ:'s -- alan ruskin with us as well. stephen stanley has been brilliant about how we get to where we get the gdp. here is the unemployment rate. markey has- dean 4%, that blue circle. witho we feel so miserable that fabulous trajectory of unemployment? steve: i think we have seen it contraction -- i think we have seen a contraction on the supply side of the economy. we have a lower labor force participation rate, so fewer people are working and real wages have not risen. that is what you alluded to earlier in the show. we do not have people inbred lines, 8 -- we do not have people in bread lines, at the unemployment office, but at the same time people do not feel they are doing that well. tom: can the dollar be a tool to jumpstart this? the feeds or effects from a stronger dollar work different ways in the cycle. commodity prices has hit the china axis in terms of stability. so i think if anything, the dollar has been more influential from a financial condition standpoint, and it has flowed the fed down enormously. tom: let me get this chart up quickly. there it is. backis sterling-renminbi 20 years. we are bringing this up just so jonathan ferro can see the dazzlement of a massive strong renminbi, now down to new strength on renminbi. jon:, the balances -- the imbalances are remarkable. john: alan, you have spoken about this before. my question would be, why? the fomc has outsourced this to the market and made us believe we need to step back. is it not that big of a deal he act go -- is it not that big of a deal? potentialave seen the tightening, a lot of it related to the dollar. the dollar effect is wearing off, and now what you are seeing our financial conditions coming back sharply. in one calculation, you had the dollar and other financial conditions tightening by 100 basis points, and now it has come all the way back. fromave the impetus now financial conditions that you should see on the real economy. the fed can get back into gear again. francine: i am taking over. to "."go will we see helicopter money? i am trying to have a serious conversation. i think tom should vault to radio. alan: it is not a real possibility right now. banks areher central thinking of easing, the fed is thinking of tightening. helicopter money for the next recession is a very real possibility, even a probability. it will be a lot more effective than what we are doing now. remember exactly a year ago last august, we were thinking that the fed tightening was a done deal by the end of 2015. that did not happen, so things can move very quickly. alan: things can move very quickly, i just hope that we are not in a state where anytime soon the fed will need to use helicopter money. what you have seen is that fed officials seem to be a lot more open to the idea, and i think that is appropriate. then a lot of the other central bankers who might end up eating their words. francine: stephen, do you think we will see a dollar rally from here? steve: if the fed follows through, economic conditions would suggest that the fund rate should be higher than where it is today. if things continue to improve, no one else is moving in that direction. if they follow through over the next six months or a year, then the dollar should do better. francine: if the dollar rises by 15%, 20% from now, they do not really need to raise rates because the dollar strength is doing the tightening for them? alan: i think the dollar is not going to rise 15% or more without the fed tightening. we have been dollar bulls. the fed is still in a multi-rate hiking cycle. not only do we get a tightening toward the end of this year, but we get multiple rate hikes going to 2017. that is what will be needed to get the dollar rally going again. andcine: stephen stanley alan ruskin, thank you so much for joining us. "bloomberg " is up next on bloomberg television. "bloomberg surveillance" continues on radio. check out our full coverage of the u.s. jobs report. we will hear from bill gross as well. ♪ jon: help wanted. what will the data say about timing for fed rate hikes? david: bonding exercise. governor carney marseille surging back into treasuries. but could that mark if you fall in bond yields? alix: european banks extend their rally to a third day, no thanks to rbs, who is feeling the pain of brexit. jon: welcome to "bloomberg ." we are wrapping up a big week for markets. david: payrolls are particularly interesting. alix: i am keying in on wages because we have very strong consumer spending. consumer spending has been propping up gdp. if we do not get the wage growth sue support that, what happens to the underlying economy? david: is this a wages