I would argue that today we should be 100 basis points higher. It is clear that that is not done. This is bloomberg surveillance with tom keene, jonathan ferro, lisa abramowicz. Tom good morning, everyone. Tom keene, jonathan ferro, lisa abramowicz. It is jobs day in america. Important report in 29 minutes. Wages, wages, wages. That is what matters this morning. Jonathan today is payrolls, next week is cpi. That should set us up for the meeting in september. You will get another payrolls and cpi report that, too. Tom no Forward Guidance into this report. That data is there at 8 30 and the fed will have to adjust. Curve inversion of 37 basis points. Jonathan the fed has pushed back in a way that we thought they would. Yields have responded on the front end by 17 basis on the twoyear. Equity markets kept on rounding. We have ripped off that market low. Close to 20 higher from june 16 on the nasdaq. Tom it does for to into the fixed income space. Frankly, that has been as dynamic as equities. Lisa shockingly dynamic, considering this is the deepest market in the world, particularly at the front end, as more people are confident that the federal will come through with their rate hikes. The reaction in markets to a good print. If you see concert which group, much does that feed into the Ellen Zentner view of things, next year you get a rolloff of inflationary input, and then positive waitrose to fuel the soft landing. Tom Randall Kroszner will be joining us later. Important perspective from the farmer former fed governor. We are getting to nadia lovell now. Green on the screen. Jonathan muted price action. The nasdaq up by 0. 04 . We are hanging talk, going nowhere going into payrolls. 88 dollars a barrel now on wti. We are done. 4 on the session. Tom smith college, you would never guess that there is a mcconnell observatory. If you are at smith college, you have to go up on the roof, looked up at the stars. Nadia lovell joins us from smith college, from ubs as well. What does the Child Support mean for your equity market . Nadia we think we could get something in the 200 range, 250 range. We also want to see Labor Participation move up because that means labor supply is increasing which could alleviate some pressures we are seeing on the wage side. In order for this rally to be sustained, you want to be in that sweet spot. Two things also important, next weeks cpi numbers. That will determine the path of the fed going forward. Tom when you were studying physics, there was an order to all this. Is there an order to the equity market, and this equity rally we have seen . Do you feel like there is almost a frenzy going on . Nadia we had been expecting a rally in june and july given the negative sentiments. But the duration is a little bit surprising for us. Some short covering, positioning, betterthanexpected secondquarter reports. I think there is a fear of missing out here after a brutal first quarter. I think we can all agree, the fundamentals have not gotten any better. The multiple that the market is putting on deteriorated fundamentals, seems quite high for us. This rally could continue for a bit longer but we think the risk reward is attractive, why we are maintaining our price target for the s p at 3900. Jonathan what would you sell into, how would you play this story . Nadia Tech Companies rebounding and Consumer Discretionary. Two Companies Account for about 50 of the market cap. We are seeing some cracks with the consumer, the lower end consumer. Overall, Consumer Spending will slow and continue to shift away to goods and services. There are also other areas of the market, particularly energy, thats been under pressure recently, that people will look back to rotate into. Lisa you specified unprofitable tech. What about the companies that have been on a tear . Amazon up 30 since the end of june. Same story in microsoft, apple, although to a lesser extent. Hasnt gone too far especially now that rate hikes are being rebuilt into the structure . Nadia i think it has gone too far for our liking. Admittedly, earnings came in better from some of the magic cap companies. You are seeing Tech Companies increase their layoffs. It is a challenging environment. Inflation will lay on discretionary spending. But i think what we heard earlier, Enterprise Spending remains strong, so we would be selective in tech. Those with higher affirmed revenue, that will be more resilient in any sort of slow down, those less exposed to the consumer. Lisa when it comes to the Energy Opportunities you are looking at, much does that hinge on a recession that doesnt come, or a soft landing that doesnt dampen demand to such degree . Nadia when you look at past recessions, it doesnt change all that much. You are not seeing a meaningful contraction in oil demand. That is why we remain bullish. Think about the second half of the year, massive pullback in oil prices. You will need to rebuild the spr. You also have sanctions on russian oil. Those 3 Million Barrels a day will need to be replaced. We heard Spare Capacity remains quite limited. This will put upward pressure on prices. We continue to believe that prices will get to 125 by years end and into next year, and that should be positive for commodities and the oil sector. Jonathan thank you, nadia lovell, ubs Global Wealth management. What she said about Consumer Discretionary is so important. We are off about 25 for the industry group. Two names make up that industry group, 50 of it. One is amazon at 30 . Tesla is 19 . For anyone that has looked at the performance of amazon off of the june low, june 14. We are almost 40 higher on that single name alone. Tom i am overcome by the child ish analysis of equity markets. Jon and i go back and forth on the dow and the s p 500. The dow is an artifact. The bottom line is it does not evoke the 20 or 30 stocks doing all the heavy lifting. Jonathan amazon and tesla does a lot of heavy lifting. Lisa amazon has so much cash, they made a purchase. Roomba, the vacuum cleaner that a lot of people have around the house. I find this fascinating. People have been wondering when they will make oppositions, but also raises issues of the tech dominance that is allowing them to do everything in your home and track it. Jonathan robot vacuum cleaner. How much are they . Lisa i dont know. I dont have one. Tom the accountant gets them for us. There were three or four of them. At first there were some real problems, the dots were scared of it. Right now, we love it. This is a company that tanks 70 , amazon is picking up off the bottom of what will appear to be a dreadful earnings report. The have sticking out the havenots. Jonathan we are starting to see more corporate activity on the equity and debt side. Lisa it had been shut down during the selloff. Now you are seeing it pick back up again. It can go from 200 to 1000. It can map your house out. Tom the 1000 roomba has a bucket on top with milk bone biscuits and it. Jonathan have you seen the balenciaga trash back . Drives me nuts. Absolutely ridiculous. Someone just tweeted the fed should hike 1500 basis points. Futures up. 1 on the s p. Payrolls around the corner. This is bloomberg. Ritika keeping you up to date with news from around the world, with the first word, im ritika gupta. More father from Nancy Pelosis visit to taiwan. China has imposed unspecified sanctions on her and her family. Beijing also cut up talks with the u. S. On drugs. It also conducted military drills over taiwan. There are signs that conditions in the u. S. Labor market are using. The july job support is out in a few minutes. It is forecast to show the u. S. Greeted 250,000 jobs. Last week applications for state Unemployment Insurance rose to near the highest level since november. Democrats have agreed on a revised version of her tax and climate bill. They will drop a provision that would have never read narrowed a tax on corporations. A pivotal vote in the 5050 senate, kristin cinema, says she will backed revised plan. Amazon has agreed to by irobot. Its devices are also used in bomb disposal. Global news 24 hours a day, onair, and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. Paying their hat on the idea that people can find a job quick. Job openings are not a thing that we are supposed to be hanging our hat on. They lag in earnest in the midst of a recession. Jonathan from new york city this morning, good morning. Tom keene, jonathan ferro, lisa abramowicz. Futures up a little more than 0. 1 on the s p. Crude, 88. Not much price action going into payrolls. Tom vix under 22 shows the extent of how we have moved. Right now we dive into the job support. Mike mckee and Jeffrey Rosenberg will join. But we start with Randall Kroszner from brown university, now at the booth school at the university of chicago. The professor basically invented price theory, the dynamics of price within any system. Do we understand the price theory of wages . Do we understand how wages are actually determined . Randall we have some knowledge of that but i dont think our knowledge is perfect. One of the key things the fed is focusing on, that wage dynamic, how much is being determined by peoples expectations about inflation, what determines those expectations, what anchors them, those are key issues. Tom is the fed flying blind right now given the shots of the system coming out of the pandemic . Do they have a theory or are they making it up in a datadependent way as they go . Randall i wouldnt say flying blind. As i think they have admitted, this is not your typical jobs market, not your typical recovery, and not your typical inflation. So they are not certain about the wage dynamic and price dynamic, but they no one thing, if they increase Interest Rates, reduce demand, that will put less pressure on prices. Lisa Michael Schumacher was talking about what the fed was looking for in terms of their communication, saying they are not getting into what they need to be saying, which is they need to be raising rates, giving that conviction to markets. Do you think they are doing a bad job on messaging, particularly with chairman powell . Randall i think that is unfair. I think people did not listen carefully to what jay said at the conference and a number of fit speakers came out after to clarify that. He made it very clear what the direction was. Numerous times in the press conference he said, im not going to tell you what number that we will be at, but look at the most recent projections we have. We will get to 3. 5 by the end of the year. That sounds pretty good to me. He is not giving a meeting by meeting number but giving a direction. The other speakers have been consistent in that. Lisa there is a fear that if that that goes into this stop and go dynamic, that they will make the same mistake as they did in the 1970s, stop raising rates to soon, and that another bout of inflation will take over and cause them to move again. How are the dynamics of inflation similar to the 1970s, how are they different, making it not as big of a risk . Randall because of that experience, the fed is aware of that. Jay and the fed speakers have said, the market is much too sanguine about them pulling rates down early next year. I think the fed realizes that it is not like you just put the Interest Rate up to 4 for a month or two and inflation comes down and everything is fine. You have to make sure inflation, Inflation Expectations are out of the system. That means keeping Interest Rates, i would estimate around 4 , for a while. It is not something that they will barely get into and then retrace. Jonathan isnt that Forward Guidance . Randall it is giving some notion of what the fed reaction function is. Whether you call her Forward Guidance or not there is this confusion about meeting by meeting guidance. Next meeting we will do 75. He didnt say that we will not give you broad direction. Jonathan did you like that, lisa . No more shortterm Forward Guidance but mediumterm Forward Guidance. Lisa i am just thinking about 4 for some time, that is where the fed funds rate will be. That is a significant change from Market Expectations. What would cause a shift away from that, what do you have to see in the labor market to justify those moves . Jonathan what is quite a long time . 12 months in 06, 07. We are seven months away from the payrolls data. Randy will come back in a moment to break that down with us. Futures down a 10th of a percent. Mike mckee, what are you looking at . Mike the divergence between equities and bonds may get highlighted by whatever happens today. If we get a bang on number, everyone trades the way they did. If it is really weak or strong, that will cause people to start thinking about recession or the fact that the fed will have to go more. Interesting to see what the headline number will be today. You have this fork in the road. As yogi berra once said, when you see a fork in the road, take it. It is probably going to be another month or two because these are backward looking numbers. The problem is we have not gotten a contraction in the past in jobs created until after a recession has started. If you believe recession is underway, you could see this happening. But economists have never forecasted in advance a decline in jobs. It will be interesting to see how long it takes to get there, if we get there. Tom mike, i want to talk about this canard of a fully employed america. It is baloney. Are we fully employed . Randall the only way you can talk about that is to talk about the math of it. The math of it is, yes, we are at a rate of unemployment where everyone who wants a job can find a job. There will always be people in between jobs. The feds has a pretty good view on that, i think. The one thing about jackson hole with yogi berra, nobody goes there anymore, is too crowded. Jonathan we are going at the end of the month. Mike mckee is standing by alongside tom keene, jonathan ferro, lisa abramowicz. When this one drops, we will catch up with mike mckee, Randall Kroszner. And then the market response with jeffrey Rob Rosenberg of black rock. Futures are essentially unchanged, but they 10th of 1 on the s p. The nasdaq up by 0. 05 . Yields likely going somewhere in about four minutes. 250k is the estimate. This is xfinity rewards. Our way of showing our appreciation. With rewards of all shapes and sizes. [ cheers ] are we actually going . Yes and once in a lifetime moments. 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Go golo. soft music jonathan your payrolls data is 10 seconds away. Futures up by. 2 on the s p. And nasdaq 100 up by. 1 . Lets go over to mike mckee. Mike this is quite a surprise. 528,000 jobs created or restored. Interestingly enough, that takes us back to where we were when the pandemic started. The change in private payrolls, 471,000. Manufacturing payrolls up 30,000. On employment falls to 3. 5 . On employment falls to 3. 5 . Average Hourly Earnings is up half a percent, more than anticipated. We go back up again after falling in the previous months. Labor force Participation Rate drops. 1, 62. 1 . The prior month, june, which was 372, revised up to 398. A very strong payrolls report for the month of july that belies everyones thoughts. I would imagine you are seeing some movement in the bond market. Jonathan big moves. Up 14 basis points on the twoyear. 2 10s briefly 40 basis points. Stocks are lower by. 7 on the s p. Nasdaq 100, down by 1 . Yields up, stocks down, dollars stronger. 1. 0176. Wow. 528. We were looking at 250. That is a big number. This is a big move tom and the revisions. We are still waiting for that data. Michael mckee, you be digesting this over the hours. Would you explain how smart people like you get this so wrong . For mere mortals out there on radio and tv, why do we get this report so wrong . Mike in this case, you look at the contributing data, the data points that tell you something about employment, and you try to figure out from there where it may end up. You look at past history. Past history is that july numbers have underperformed the forecast since 2017 until this year. You have models in terms of what you know about various industries, and it is really hard, and it is even harder now given the fact that we are coming out of pandemic. Tom right now, i am doing that threemonth moving average with revisions. 437,000 jobs over the last 90 days. That is a wow statistic. Lisa it is a labor market boom. Average Hourly Earnings revised upward in the prior months, state at the same level of 5. 2 . It comes as the Participation Rate continues to fall. What do you make of