>> are you in a recession or not? we have a very low probability. >> we are not out of the woods. >> the pain trade is that inflation is fully vanquished, everyone things. >> either inflation falls because the economy weakens or it stays strong. >> we need to focus on the data and what we need to understand from the fed is that is it only inflation or are they taking into account a slightly softer economy. >> this is "bloomberg surveillance with tom keene,

jonathan ferro and lisa abramowicz. jonathan: live from new york city, good morning. this is "bloomberg surveillance" on tv and radio. your equity markets are slightly positive on the s&p by 1% after a stop -- after a shot -- a soft sstart to 2024. tom: tangible but not support. there are a lot of different opinions and people that were cautious on the market saying this is what you get after that paying up fourth-quarter. i say we are starting off with a narrative and thursday is adjust the narrative thursday and friday we will feel a lot different. jonathan: the commentator taking shape. jobless claims coming up and payrolls tomorrow. not much for the equity bowls to get their hands on, but that is the commentary from morgan stanley. jeffrey's attempting to put the

toothpaste into the two. lisa: and completely failing. they did not succeed in sending a hawkish message. on the margin they are saying words, but at the same time this highlights that they stand behind the message sent. this stood out, many were marked that an easing in financial conditions beyond appropriate could make it difficult for the community to rate -- to reach inflation goals. tom: you beat me up so badly, i looked at the minutes. there were 425 people. didn't move the market? i tried to discover when the minutes were released did it mean anything to equities, bonds or commodities? lisa: do you feel guilty? tom: i did not read the minutes. i read what was there. it is like a state dinner at the white house, do you look at the menu were see who is there? lisa: it does not move the needle but highlights the point

that the uncertainty is they are. the fed officials want to push back and financial conditions matter again. jonathan: let us talk about apple in the market, another down grain -- a downgrade of 5% to neutral from overweight. we are down 0.8%. valuation concerns and macro weakness in the first half of 2024. what is important about this, that if you look at the calls, they have had a buy on this stock since spring of 2020. this is when he traded in the 60's and now we are at 182. that is quite a move. lisa: this comes after four straight days of declines for the nasdaq 100 which is the longest losing streak. is apple its own story or will it drag down the rest of the complex. we have been talking about the dispersion and yet you have seen

a real moving in tandem. tom: people are in support or resistance, but apple is not. it is a 5.6 standard deviation move from the peak on december 13. we are down three points in standard deviations and that is tangible. jonathan: we have to frame it with last year's price action where we had a gain of almost 50%. let us get to the price action. the scores look like this positive by .1% on the s&p. they yields up by three or four basis points. getting closer and closer to 4%. jonathan: not -- lisa: not reaching because it is kind of quiet. we are looking at data out of europe and the jobs report. we get german cpi at 8:00 p.m. eastern ahead of the european cpi data. here is the question, what is the threshold to stymie the

rally we have seen in 10 year bonds with yields materially coming in from the recent high. we do see disinflation continuing in europe. adp comes out and the employment change at 8:15. eight: 30 a.m. initial jobless claims. the data was interesting not just because of the number but because of the quits rate which has ticked down to the lowest. i am watching indicators like this to see if we are seeing a softening. the s&p global services pmi might be more instructive than manufacturing which remained in contraction for the 19th month straight. jonathan: and late 2020 or 2022 it has been in negative territory. lisa: and the commentary was positive was -- because it was improving. it has been a non-issue even though services -- jonathan: you brought up that because i am with you.

there is a difference and you can decide where the line is between a welcome call in the labor market and an unwelcome deteriorates in. lisa: at an inflection point, it is hard to tell if this is the beginning of a dramatic swoon or the gradual softening that is needed to bring inflation down. that is the uncertainty causing a lack of narrative and that is what i am trying to get my head around. tom: the yield call at 3% and then 10 minutes later at 5.5%. we are looking for a narrative and make your bets. a lot of people are in play. the doomed crew has had a hell of a 48 hours. did you see what they did yesterday? i think he was wearing black all day. jonathan: mourning the losses in apple? tom: the bears went after him. jonathan: i doubt it. i doubt it. no reason after the gains.

let us kick off the conversation. the investment director at investor -- invesco solutions. recession a risk of 2024 as a prior rate spike. is that last year's outlook reheated or is there something different? ben: hello and happy new year. that comment still holds. the context is one of a positive view on equities and the economy. but, like the risk to that view is the recession threads. i think the conditions are continuing to recover in equity gains and markets and incrementally more connotative policy and that feeds our positive equity is. yes. business is, consumers it is all

about mortgages and overdrafts, credit cards, auto loans. they are going to roll into more punishing rates. and that will bite -- will bite harder into consumer confidence. tom: on an allocation is -- allocations basis, what is 60/40 going to do? can bonds give me more than a coupon? ben: i think that a 60/40 portfolio has -- is a compelling place to start relative to prior years. that disinflationary narrative that i talked about does not just support equities. it directly supports bonds as well. and certainly as we refer to the previous answer and talk about one of the risks to the equity market is a recessionary threat, but providing you have high quality bonds just in duration

and government bonds, that 40 should do better than it has in prior years. so that is a good place to start. certainly some adjustments need to be made in the 60 and 40. tom: the adjustments that are going to be made, are they going to be made off of economics or security analysis on revenue growth or earnings estimates. is it germane this year? ben: i think that the fed game will continue to create noise and uncertainty in markets, but it will be the data that ultimately drives markets. and if that narrative you know holds and growth remains resilient and the fed can cut a couple of times, the markets, i know november and december is along the back of the narrative,

but the gains, it should still be a positive environment for equities in that outcome. lisa: you talk about 60/40 and say it is a good place to start. we heard something similar yesterday because he said we could finally fit -- we could finally play defense and yesterday i came out with this chart showing that bonds and stocks have moved in a positively correlated manner going back to 1998 and this is continued regardless of the calls at 6040 -- 6040 be conservative. however you on this after that warns that it might be broken. ben: the most perilous would be a return of conditions that we saw in 20, heaven forbid and that would be a inflationary resurgence because that is damaging to both bonds and you

are thinking about a more material recession because we are starting on such a higher level. the thing that gives me the most anxiety is perhaps a cut that comes too soon from central banks. and given labor market conditions where they are, maybe that injects too much confidence and inflation is back on the table and rate hikes a possibility. that is the one that worries me the most very 60/40 rather than a recessionary threat. it is hard to think it will be mating -- making a lot of money but if reflationary pressure is returning that will cause you trouble. lisa: i am curious how you trade some of the geopolitical news because some of the headlines have been increasingly inflammatory. how can you trade off of rising concerns about a broadening of the conflict in the middle east?

ben: that is a very difficult question to answer. i do not want to appear reckless to it. the geopolitical analysis, if you anchor your investment strategy into geopolitical challenges because that might be reckless. at the moment, it is very terrifying news, but it looks as though things are being contained and markets are relatively sanguine. it is important to have a hedging place and a key risk is that you get the oil price surging. that would be bad news, but may be some parts of the capital markets can perform better, going long breakevens and energy straw -- energy stocks and u.k. equities. that is a good defense against resurgence. we would not anchor investment strategy to geopolitics but certainly put some hedges in place of a consequence of it. jonathan: some stocks

outperforming in yesterday's session. happy new year's to you. prude the biggest one day again coming back to the middle of november and adding to some of those gains up 1%. $73 and $.40. -- $73.40. lisa: this comes after some inflammatory threats during the funeral of their top commander. i am looking at if there is any knee-jerk response. tom: it has not so far but we are going 9024 months ago and we were modeling 110 or 120 demand, and we are it -- and we are still awaiting that. oil is hard to call. but the answer is, i have not looked at the fancy charts. oil has been a gift. a lot of them is under three

dollars a gallon. that is not -- we have not translated to leaders. jonathan: 13.3 million hours a day of crude production. my academic research and all of that if you want to make a fool out of someone ask them for their year end food check crude forecast. tom: other question, can i fit in a little fiat. jonathan: the fiat 500? jonathan: i am going to say no based on the fact that you get annoyed about chevy suburbans. i'm going to say no based on that. from new york city, good morning. ♪ the first time you connected your godaddy website

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>> we have no indication at this time it all that israel was involved in any way. everything we have done and the lay down i just offered of the force posture changes has been designed to prevent escalation or deepening of this conflict. as we have said we do not want to see it go beyond israel and hamas and we will keep working to prevent that from happening. jonathan: that was john kirby addressing the recent blast that took place in iran killing 84 people as fears of a larger eat -- larger middle east conflict begin test -- begin to escalate.

i just want to stay in touch with the price section. slightly firmer after a three-day losing streak. four days on the nasdaq 100. higher by .15%. in the bond market yields higher by four basis points. the 10 year, 3.9554. 8:30 eastern time, initial jobless claims and then payroll just around the corner. the estimate 171,000. just of finish on crude. yesterday and today up by another one percentage point. just a bit higher. 73.43. tom: the bloomberg professional service has green and it looks a little decemberish versus the two day of carnage in january. the jobs report on friday.

i looked at 15 survey points. everything is just marginally shifting. it is a nuanced impact -- a new way amongst guesstimate. jonathan: things have cooled. claims today. 216 is the estimate. payroll, 171 is the estimate. the unemployment rate might be coming in higher at 3.8%. wage growth year-over-year, it does not scream end of cycle does a? tom: some people are looking for drama that i would go to wage growth at 4% to get it done. speaking of all those incremental actions in washington they might be coming back to work. edward mills, washington policy analysts. you have a very domestic note with very domestic issues. jonathan ferro mentions the idea of the ford wars. is there a foreign policy stance

among democrats and republicans on capitol hill? ed: they are trying to find that and they wrap from a domestic agenda. what we are looking at is not just funding the united states government, but the national security issues. you have the supplemental looming in the background for israel, ukraine, and taiwan but republicans are saying if we are talking about national security we also have to talk about the border. that is what -- why republicans were at the southern border pushing for border protections. the problem for them as they continue to lose members and they are down to 219. usually you need to 18 to get it through the house. they have really strong border policies but they do not have the votes. tom: what does the democratic party view a national security issue at the border. is it new ounce or do they flat

out disagree? ed: i think it is a little bit nuanced. in the bill that failed in the senate in december there were some border funding provisions. what we have right now is that that democrats understand they need to do more on the border. there have been negotiations but they do not want to go as far as house republicans have been pushing. they call it the protect the border act. that is real changes to asylum, changes to e-verify systems. that is rebuilding the trump border wall. those are a step too far. what we have to see is that democrats have to go further than they are comfortable with to get the other provisions but we are in the period of trying to figure out where the line is. we will go up to it and potentially have a government shutdown, january 19 or february 2. lisa: that is where i wanted to go there seems to be republican party shipped going beyond the

border security provisions to funding for ukraine and israel to moving it more broadly to shutting down the government if they do not get what they want. does that make it more likely we will get a government shutdown that it does not matter? ed: that is a great question and we are right on the precipice of grand bargain or bust because we probably have to watch what develops in the senate, but we do have the sense that republicans want to fight and they want to show that they are pushing for border security and want to push for what -- for more than what democrats want. sometimes having the shutdown elevates their point. however republicans also want to have the ability to say they got something done. that when they run for reelection in november they can point to an accomplishment and say that is where the grand bargain comes in. there is a strong desire to support israel, ukraine and

taiwan for the defense supplemental. if you can put it together, even if we shutdown the government, at some point we will reopen. it is a question of how far and how much drama. at raymond james we point out that in past government shutdowns on average the s&p 500 has been up by 3.2%. from a market perspective we discount the fact that the government can shut down because it always reopens. lisa: donald trump. we are talking january 15 with the iowa caucuses and iowa on january 23 where we have the first primary. how much does it change the calculus if donald trump wins the primary races in those two states and we get the feeling that he is at the helm of the republican party? ed: at that point what you would see is the voice of donald trump becomes more important in congressional fights. right now a lot of the times when he sends out a message or

such a policy stance it is noticed but not truly followed. if he reestablishes himself as the head or the de facto head it looks like it is going to be the nominee and if he says kill the bill do not vote for this you have to fight stronger on border security, that makes it harder for republicans to cut the deal. that is putting pressure to try and do it sooner rather than later if they can get done by the january 19 deadline that is after the iowa caucuses but before the momentum could build. alternatively if you have someone like nikki haley emerge. the markets would surge because there is a sense that she is a stronger candidate against biden , the likely democratic nominee and that gives us a little bit more rigell -- wiggle room for house republicans and republicans generally to cut the

deal. jonathan: that is the range of outcomes for the next month. ed: yes. the base case is drama, brinksmanship, it does seem like we could easily get the government shutdown, but from a market perspective, i tell clients to pay attention to the longer-term provision, and i do think we will get government-funded. we will get a defense supplemental and something on the border, it is just a question of timing. jonathan: happy new year. what a calendar, what a political calendar, never buy the rest of the year. the next four weeks. january 19, and then february 2. lisa: my favorite part you asked you have all of these potential outcomes at market move things, what is your base case and he was like i do not know. exactly. this is the reason it is why it is like staring at the -- staring at the sun.

that seems to be everything when you talk about government shutdowns. doesn't matter. people will say yes until it matters -- until it happens and then it does not matter. these are the things we are thinking about as we do some massive dates and decisions. jonathan: the key deadlines are coming up. tom: can you imagine john up to three point main? down route 95? lisa: i get so many l.l. bean catalogs because of you. seriously. that is what is happening. tom: can you see him at the new hampshire primary? jonathan: i have noticed that. tom: you can get the wicker basket and walk around. lisa: it would be nice to see you decked out. ♪

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jonathan: read a losing streak on the s&p 500. four days on the nasdaq 500. the price action looks like this. trying to bounce by .2%. .2% on the nasdaq, small caps and the russell. one single name to take a look at, apple. it is another downgrade. the stock is down 5.6% after a struggle to start 2024. the takeaway headline, valuation concerns and broader weakness in the first half of the year. lisa: everybody has known that.

everybody does seem to know and it is still making an impact because people seem to be more concerned about valuations getting ahead of themselves. jonathan: weakness, just not the growth in iphone sales which is why barclays pushed back. tom: near december, down 8%. and in the standard deviation basis, let us be clear, this is worse than the general nasdaq failure. jonathan: should we turn to the bond market. treasuries looking something like this on the two-year, 4.34. on the 10 year, 3.9535. we talked about how the manufacturing has been useless as a gauge. it has been sub 50 since late 2022. jobless claims, what are the data points that spoke to the

strength of 200 k? lisa: people talk it creeps up to 216,000 and things will fall out, but are we reaching an inflection point or gradual normalization. i think it is some of the uncertainty that we are trying to grapple with and certainly what you are feeling. jonathan: claims data is two hours away. we can talk about the euro against the dollar and the swiss as well. the euro is stronger against the dollar at 10 -- one point 0956. the swiss is at really interesting levels. tom: when you look against swiss and hungarian mortgage is, that is inside the baseball. the syphilis frank -- the swiss franc is down on everything. we burst through a new strength and technical analysis can be done. there is some scuttlebutt and they couldn't -- and they own so

many apple shares and maybe they are selling it in the week. lisa: i thought you were starting that rumor. tom: that is a lot of speculation. he lived this in zurich. jonathan: should we do storytime. lisa: we were having a $200 lunch, fact that it was 200 and now it would be 300. will they act with a vengeance this time? jonathan: 12 to 13 year history of euro swiss if we could get a chart of euro swiss up and take it back to 2011. in 2011 the debt crisis and the swiss is getting stronger against the euro. it is late august and early september, the s&p introduces a flaw for 1.20. they get into a little bit of trouble and we will not talk about it. 2012 the flaw is kept until early 2015 when you and i were covering the story. rips away the flaw of 120.

the swiss absolutely surges and we trade in the 90's. i can tell you that in the last month, euros swiss has taken out the levels that we dropped to when we ripped away the flaw in early 2015. that is how strong it is right now relative to where we have been. tom: the strength goes into the swiss economy. this is not like china where there is a measure and gradualism. when they act it is with a vengeance. i do not hear that speculation but nevertheless that is the history. jonathan: back in the 90's and we do not know how many foreign stocks they are banking at the moment. under surveillance tensions building after nearly 100 people were killed in iran. two explosions targeted the crowd marking the death of a top general killed by a u.s. drone strike. no group is taking responsibility. the state department saying it has no reason to believe that israel was involved. lisa: the more that i read about

it the more uncertainty there seems to feel. the u.s. administration officials say anonymously that they do not think that israel did it. usually they act in a different way. iran blames israel in the u.s. and some people are saying it is isis. really it is unclear what the motivation is because it is a different attack. it is not targeted to one official but the general public and there is are ron -- iranian anger about why they didn't protect them. jonathan: on the anniversary of his execution going back three or four years. i just remember that january of 2020 when we felt like it was on the brink of something big, it was not a pandemic but this. tom: lisa gave a nice overview of overall of the other niceties of religion and government that it has rocked iranian society. jonathan: i want to turn to the

story moving over to japan. boosting pay for young brokerage staffers by 16% in the next fifth -- in the next fiscal year. they are boosting it far higher amid competition for talent. this marks the first increase going back to 2017. you're talking about a once in a generation opportunity to reset inflation expectations in japan and we are starting to seize signs of it. tom: this is really well-timed with bonus seasons in new york. the ceo likes to come up on bloomberg and we will be responsible and because controlled and they have to keep the talent. jonathan: this is the perfect story. china totally different story. thanks and china are telling staff to caught travel costs including booking cheaper hotel rooms and they are going to have to avoid business-class flights. what would you do?

they are under higher pressure to raise margins in the face of bad loans in the property sector . authorities have ease deposit radiation -- rates and cut cost in china, the sting salaries in japan and different stories taking place. jonathan: how it -- lisa: how would you deal with the central commission for discipline inspection? i saw that name and i am thinking if you had to report your amex bills to the central commission for discipline inspection how would that go? tom: pro tip, we love for you to know about what the exotic iced -- zeitgeist is doing. george magness has been strong on twitter. i will put that on twitter. george magness on china has been lights out. jonathan: he wrote a piece in " the guardian." tom: he has been very strong.

let us get to it. this is something that jonathan ferro has not forgotten about, i have, and that is europe, the head of america and europe's research standard. i want to digress away from the research data. we have not addressed at the beginning of the year the challenges of christine lagarde. how are her inflation challenges different from those of jerome powell? >> there are not too many differences in terms of the challenges because in both cases, you have a strong labor market. and the question is are -- is the fed and ecb, are they taking a different approach to those strong labor markets. we had a clear message from christine lagarde at the last ecb meeting that domestic inflation pressures were a concern. that full employment and ongoing

labor market pressures were a concern. and that is why the ecb is cautious and why they are not talking about rate cuts. the fed's view seems to be we are getting a soft landing and inflation is coming down. we are not too concerned about labor market strength. i would note what happens to wage growth tomorrow. we saw for the november payrolls report and earnings up stronger than expected. that could be a concern going forward. lisa: that was the high point -- tom: that was the high point of your research. if you take hourly on -- hourly earnings i bring it over to wages and benefit. it is the efficacy for you tomorrow at 8:30? sarah: i mean we are expecting a slow to be fair. we will see a softer monthly growth. but that is against a backdrop of last time around higher year

on year, higher monthly, higher on a three months and six months, all of the measures that the fed likes to look at. the reason why i think it is still very much worth taking account of what is going on it is because the disinflationary forces that have weighed on inflation to date, goods inflation, imported inflation, commodity prices, we are starting to see those reversed and we are seeing a pickup in commodity prices and geopolitical factors behind the higher freight costs. a real jump in phrase -- in freight costs when we have seen them flatlining over the year. and what central bankers will be concerned about is that you have not brought core inflation down far enough before the benefit from weaker energy and fruit --

and food prices starts to reverse and headline inflation starts to take over. so, the wage earning section is very important not just for the fed but for the ecb. for the moment central bankers are taking a different slant of what is going on and those fundamental drivers of domestic inflation pressures. jonathan: when you compare and contrast the differences, how differences are the thresholds, who goes first and what have you penciled in? sarah: we do have the ecb going first, they will cut by the second quarter and they are shrugging aside weakness in the economy, and that is going to become more of a factor. obviously inflation this time around for december is more higher year on year because of base effects. the broad trend is moving in the right direction. ultimately we think that by the second quarter and the next set

of forecasts that we get for june, they will be signaling clearly that there will be inflation on target over the time horizon. possibly they get there a little bit earlier, but we do see a cautious approach from the ecb. so we think second-quarter rate cuts. for the fed we have the third quarter factored in. but i will have to say that the commentary that we have at the last fomc seems to be giving greater emphasis to the underlying growth of the economy and potentially the need to not over tighten or not hold rates too high for too long. which could suggest that they move earlier than the third quarter. obviously markets are expecting that they could move as soon the next couple of months.

we think that that will be too soon. the minutes i suggest are more cautious than powell's commentary after the last fomc meeting. jonathan: that is how the war between communication and expectations continues. happy new year. sarah on the difference between the ecb and the federal reserve. and then i think it was yesterday the fed minutes were fine tuning the message after we hear from chairman powell. lisa: what does that mean? you put the toothpaste back in the tube, can we say no. can we say how much of a cover jay powell has given to christine lagarde. she could say nothing and be looked at as the winner after jay powell came out with a message. all she had to do was adhere to the vague message that nobody believed in the euro would get a boost and they would have some sort of lack of drama. tom: i do think that is a convenience that we have that governor bailey is on the red

phone talking to jerome powell in washington. but, lagarde is completely distracted of manufacturing in germany and the productivity of germany which is a change then when it was five to seven years ago. that looms a lot larger and then historic inflation battle as well. jonathan: the business model of the country, you mentioned it. could we rethink passive in europe about how to best to move forward. coming up shortly, bloomberg intelligence on china. equity futures and the s&p just about unchanged. from new york, this is bloomberg. ♪

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♪ (upbeat music) ♪ ( ♪♪ ) ( ♪♪ ) ( ♪♪ ) -awww. -awww. -awww. -nope. ( ♪♪ ) constant contact delivers the marketing tools your small business needs to keep up, excel, ow. constant contact. helping the small stand tall. >> the challenge for the fed is that they still want to have a soft landing and we all want to have the soft landing. that would be the best outcome

from so many dimensions. but what is beginning to matter is that they have sucked so much liquidity out we have gotten to a point where we are seeing some strains in the plumbing. jonathan: absolutely phenomenal yesterday, clinical and worth going over again. find that interview on bloomberg.com. we are pulling back a touch from where we were an hour ago but it is now essentially unchanged from the s&p 500 after three days of losses. key data later this morning starting at 815. do whatever you want at that. i am not going to suggest that it is important and you will decide once it comes out. 8:30 eastern time jobless claims. 24 hours after that the payroll report, the estimate so far moving targets as we get the estimates coming through. in our survey, 1.71. lisa: we are not seeing weakness but strength. we are seeing weakening but that

is difficult to trade. when you see a linear move, is it going to be linear or nonlinear in terms of shifting downward? jonathan: for those of you who want to the estimate on jobless claims, 216. on the adp report we are looking at 125 for the month of december which is slightly higher than the 103 previously. tom: we will have you -- we will have that for you at 8:30. we will go beneath the headline data. always beneath the headline data is the chief emerging market for bloomberg intelligence. he knows ubs and george magness if he writes, you listen. ho -- a tour de force in the " guardian" alluding to the instabilities of china back to the japan of 1994. have they screwed it up so bad that they are like japan of 1994? >> why are we talking about

china, it is not from an investment perspective. everyone we talked to seems that china is not investable. you talk about it because it is the second largest economy in the past through from the u.s. to europe. from that perspective it is dire. they are getting worse if you look at pmi data or average salaries that have declined, biggest year-over-year decline, there is plenty of data to .2. i would rather talk about the u.s. treasury yields, which is where i live and breathe which will have bigger impact evaluations. jonathan: when you look at e.m., has the aversion towards china shaped the approach elsewhere? damian: yes. this market you are looking at latin america and emea. asia is not the market because inflation is structurally low. it does not mean there are

opportunities but indonesia is still raising rates in an easing cycle. so from an em perspective, real yields are high in latin america. for a valuation perspective, four years about -- outperformance and we will have a regime -- a regime shift, you probably do want to look to the emea region. lisa: i am not going to let you discard the china discussion and nobody has been able to get it right but we have been seeing yields go down significantly on chinese bonds because there is this promise of more stimulus. there seems to be heightened concerns about the economic considerations in the nation. how much can you lean in given the fact that some people are saying it is so on investable. damian: it is right to focus on that because the stimulus that china affects -- that china brings will filter into the broader world at large.

the data points that you want to look at a 3% budget deficit. that was set last march and they never reached it because of the broad fiscal stimulus and it declined in a large part because of what you are pointing out. lower chinese yields. every you on of stimulant -- yu on that they are injecting matters that much less. stimulus matters in china but much less and it has to be the execution and that is where things get dicey in my mind. lisa: it is interesting because sony -- that you do not want to focus on china because so many say it is on investable. there was a report coming out that jp morgan has reduced the exposure to time -- to china since 2020. this has been a dramatic retracement. does this make it difficult for people to play in the spaces that they want to. is this on investable because of a lot of financial firms do not want to engage given the

unpredictability of policy? damian: are you talking about investments or companies. it is important to differentiate. we are reading and hearing about transfer rules, and the crosspoint of data transfer is becoming difficult. the cost has become so hard because of the data transfer and all of this compliance dripping -- driven and etc. it is difficult to invest in china from the perspective of the c-suite. it is bringing it down into investment portfolios. tom: i want to go something into your world. you mentioned latin america. this area of peru. i am buying it with a six or seven-year-old. it is down 32% from the beginning of the pandemic. it has come back a little bit as well. how do we are mortals buy this

area of 2034? damian: your guess is as good as mine, will have to call your broker. i am kidding. you can do it tom: did the big banks actually follow this stuff? damian: how many u.s. treasuries do you own outright. you are a bad example but most people do not own u.s. treasury bonds but they have an etf. if peru you are looking at peru and the hard landing and yields are high on a nominal basis. tom: what is the top that she could get the 401(k) from the bonuses that area of 2034? lisa: what is this? damian: there are a lot of fun sounding instruments. tom: are you talking 20%. damian: i am kidding. as a, mexico -- brazil, mexico

and peru the yields are high and they are attracting investors and it is showing up in spot performance. we are talking about total returns which includes the interest return which was positive for the first time in five to six years. jonathan: let us finish on this and sometimes we say things that are really important and loss over them and move on. we are talking about the world's second-largest economy and the markets being on investable and we are sitting around this table as if that is something everyone knows already. does that matter to leadership in china that you have a whole universe of investors that are looking at an economy that is so important to the world and yet we believe. i am talking about a group of investors. they believe that that economy and those markets are un investable. damian: i am sure that beijing likes the sound of that i do not that they are listening to what uri or saying or for that matter jamie dimon and a lot of other

people. there is not much they can do at this point but it would also take a regime shift were something to dial back a lot of the constraints that president xi and the patient -- in beijing put on the broader economy. the hold that back would be an admission of failure. i am not -- i profess to be 70 who knows a lot about china and how to incorporate the views into a broader portfolio but i am not an expert and i do not know what is going on inside of beijing. from the people i speak to and who i trust implicitly, they do not have china in their portfolios at all. tom: thank you and good to see you. we say it so casually, china on investable, that has become the consensus in the last few years. tom: i agree it is a seismic

change. it stops, as you say with the government and the totalitarian regime and what is the next step? lisa: it was why i was in the -- i was interested in the central group for discipline inspection which said to clean up their hedonistic lifestyles. this is what caused the lack of flying first class and etc.. how important is a thriving banking system with a country profess to be communist. if you start to have ideologies of communism imposed in the country, how do you get any confidence that they will really invest with some sort of capital overlay? jonathan: is the first class cabin quieter? tom: i do not have the peru piece but the austrian piece was down 74%. jonathan: has it bounced? tom: it has a little bit of a

bounce. jonathan: equity futures are unchanged. coming up alpha simplex and they are short on treasuries. ♪ high taxes can erode returns quickly, so you need a tax-optimized portfolio. at creative planning, our money managers and specialists work together to make sure your portfolio and wealth are managed in a tax-efficient manner. it's what you keep that really matters. why not give your wealth a second look? book your free meeting today at creativeplanning.com. creative planning -- a richer way to wealth.

>> are you in a recession or not? we have a very low probability of recession. >> we are not out of the woods when it comes to battling inflation. >> everyone thinks that inflation is vanquished. >> either inflation falls because the economy weakens or the economy stays strong. >> what we need to focus on is the data and what we need to understand is it only inflation

or are they taking into account a slightly softer economy? >> this is "bloomberg surveillance" with tom keene, jonathan ferro and lisa abramowicz. lisa: the new year -- jonathan: the new year hangover continues. this is "bloomberg surveillance" alongside tom keene and lisa abramowicz. the market on the s&p this morning is totally unchanged after a three-day losing streak on the s&p and a four day losing streak on the nasdaq 100. tom: a little better take. we have a wonderful person coming up. you see that within the jobs report in early december over to now where you go between 4.23% to four point 6%. the world has changed at the beginning of 2024. jonathan: >> the adp report, that they

want is right around the corner. >> we are seeing informational shifts but not anything that misses her the screams some sort of cataclysmic fissure into the market. how does the labor market to with fake and accurately moves. tom: you know what -- jonathan: you know where i am going with this. how do redcoats work? -- rate cuts work? morgan stanley said it is worth repeating. attempting to the toothpaste back in the tube. lisa: before these minutes came out and the record came out, we saw almost an 86% chance of a fed rate cut in march. that is all the way back down to

65% chance. still getting priced market. tom: they are wedded to a venued measure. every single conversation, we are going to be measured and moving mentally. a lot of people are breaking for arthur burns when they say things have changed, we are going to points but we are not measured, just moving to move it i don't hear that. jonathan: this is how the fed might respond to economic data. jp morgan results just around the corner. we need to talk about apple. apple, the standdown name, we headed down from barclays, another one this morning. downgrade in the stock to neutral from overweight, talking about value she concerns and broader micro-weakness for the first half of this year. jonathan: we all know -- lisa:

we all know this, this is not a new story. they did not see sarah's growth -- sales growth and yet their stock is up. how much longer does it have to go? tom: they are good to spend $80 billion or $50 billion, the number doesn't matter. a lot of money on share buybacks. if you love this at 200, you have to really love it at 182. lisa: if you take that logic and you brought it out to the big tech sphere, mark zuckerberg sold the greatest amount of his greatest personal shares going back to 2021? how much can you glean from where they are buying or selling your if they are not good to do buybacks, does that mean they don't have faith they can generate growth? jonathan: is the cash machine at apple and it will continue to be a monster cash machine.

the problem was for last year what you saw was an expansion in multiples at the same time the core product was not seeing sales growth. the bulls were right on the stock. that is the challenge in 2024. can you repeats that after what you saw in 2023? tom: the foreign exchange adjusters and the premium phone sales. there is a raging debate on the 10 year yield as there is on apple computers. jonathan: the stock is down. we will talk about the bond market. equity futures on the s&p. this morning, just months ago, turning negative on the s&p 500. lisa: in 55 minutes we get german december cpi. very curious to see european inflation reads and how that features into the fed-ecb divide we keep hearing about.

8:15, we get the adp december employment change. we also get initial jobless claims. data showed a softening in the market that was material when you look at ushers like the quits rate which is the lowest going back to september 2020. people don't have confidence they can get another job. that is the idea behind why this is important. at 9:45, we get a focus on services since that has been a stalwart of expansion even as we see manufacturing. jonathan: shall be talk about the journey of --, short treasuries. you start the year at 390. it gets delayed to late october, the 10 year yield goes to 5.0%. you stay short. then the 10 year goes back to where it started, 3.90. joining us for someone who was a

short most of that year, katy kaminski. it felt good for a while and then this market turned. are you still short after the pain of the last couple of months? what changed for you? katy: trend signals finally turned long and this is a signal for the market because we have been short nine orders. -- nine quarters. this has been one of the longest shorts over the last 20 to 30 years. it signals the end of the tightening cycle and suggests we are going through a regime change and we need to start looking at the next phase of the bond market. for me that is looking above is deeper yield curve. i am trying to think about what is going to be the catalyst for that. lisa: it is one thing not to be short, it is another thing to be aggressive in long.

greatest trend following signal send you? katy: right now they're muted but what have to watch is how fast cuts are coming. we need to be a little bit nervous. we need to watch what is happening with supply and treasuries to see the end of the curve to see what is happening there. as a weaker data comes in and as we try to rollover date -- over debt. this will be the year to see where the curve settles out. lisa: when you talk about is deepening in the yield curve, it can come from short-term yields coming down or from longer-term yields rising aggressively. are you saying because you are no longer short treasuries that you see it's coming more from the front end with the more aggressive rate cutting cycle? katy: that is what everyone is focused on. we are focused on how soon our cuts coming and when are we

going to see the shorter end of the curves deepened so we have this steeper yield curve. the typical thing that would be the challenge is if we start to see more challenging effects on the long end of the curve. poor fixed and from -- fixed income market on the front end. that would be poor valuations for that. if we have four options in the treasury market. that is something i will be watching. tom: let's talk to global wall street that hangs on your word on trend based cta technical analysis. we had a trend to higher yield in the 10 year. we have rolled over. the indeterminate point, i call soup. are we in the soup or can you state we have a trend toward lower yield? is a trend in place of higher prices and lower yield? katy: we hit the inflection

point and started moving toward longer signals, especially in most asset classes, particularly equities. we have seen very strong sort signals -- sure signals in the u.s. dollar. we are seeing the inflation trade we saw for two years dissipate and move past the point to a new trend. tom: talking about dissipation, what will it take to get trend in place where there is impermanence to weak dollar? katy: rage cuts would continue that trend strongly. not as weak data as we continue to see this soft landing be a possibility. i think that is going to be in question. my general view is that we are going to see a lot of variation in outcomes.

a, bond volatility remains elevated and bond correlations remain positive. those are two technical factors that are very different. we need to navigate those first before we can figure out how we moved back to where we were or moving somewhere else. tom: we caught up someone yesterday from j.p. morgan that talked about 6040 being bank. is there any reason to believe it is back? is there any coalition to suggest that it's back to slightly more intuitive? katy: i think everyone wants that, but i think the worry is what i said. we are seeing different asset class relationships. we need to watch inflation and watch for how inflation behaves because inflation changes the nature of asset class relationships. if we see inflation have upset risk potential, we will see more

challenge to 60/40 narrative. if we can keep inflation under control, i agree for 60/40 is a good place to be. that is probably why the fed is being more conservative than careful. they want to make sure that is the case. jonathan: appreciate the update. have a good new year. this bond market after a rally through november and december. the 60/40 call, the return of 40 being a defensive story, we retain risk mitigation characteristics when they have been the source of risk for the past 12 months. lisa: what she was saying is important, it only goes back to a 6040 ballast if inflation comes down. then we are not talking about inflation as the main risk. jonathan: if you are just joining us, welcome to the program. here is the equity market, a bit of a struggle to start 2024. three days of losses to the end

of 2023 into 2024. four days of losses on the nasdaq 100. equity futures up by 0.04%. yields higher by basis points. with economic data about one hour away. lisa: we have the adp report which does come out, it does not necessarily have a direct correlation to tomorrow's payroll report. all of these indicators get more important when all of a sudden it is incremental it is hard for market that is used to sign to respond to increment a moves. you get an oversized move in markets that are on pins and needles. tom: a new discussion board is the new narrative. there is huge discussion on what the new narrative is. today and tomorrow and january 11, the answer is we are going to have a lot of narrative

before j.p. morgan's earnings. jonathan: i can confirm is the 11th and then it is j.p. morgan earnings. all of the earnings next week for the big inks. you have cpi this friday. then we have spending deadlines by the government in washington, d.c. one is the 19th of this month. the other is early february. coming up shortly, greg valliere. then later drew matus of metlife is going to join us. equity futures are positive on the s&p 500. good morning. ♪

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>> the base case is drama, brinkmanship. it seems the like -- it seems like we could get the government shutdown. i tell clients to pay attention to the longer-term provision. i think you'll get government-funded. we will get defense supplemental. we will get something on the border, it is just a question of timing. jonathan: two deadlines in washington, d.c., that was ed mills over at raymond james. good morning. equities unchanged on the s&p 500 after a few days of losses

on the s&p and the nasdaq. unchanged on the s&p and the bond market, yields higher in 10 year. 3.96. the euro is stronger by .25%. sit on could for a moment, picking up yesterday, the one-day rally going back to november. picking up again today by 1%. $73 and $.40 -- $73.40. tom: you have to look at america as a dominant provider and brent crude which has more to do with the eastern mediterranean. went down and it is trying to come back against this horrific backdrop. lisa: and it is escalating. that seems to be the clear discussion from overnight. there was an article in new york times that said this, "the chances of regional war in the middle east go up to 30% in

light of the attacks in iran." jonathan: does the were spread? the prospect of escalation. trade is lower. we are still asking the same question. tom: joining us is among with huge experience on america's attitude towards eastern mediterranean and something which agua's about which is lebanon -- something we talk less about which is lebanon. greg valliere of agf investments. i mentioned a small matter of the u.s. marine corps in beirut 40 years ago. i got a huge response on social. what is the american relationship with a fractured lebanon? essentially no government, hezbollah is active there. what is our policy there?

greg: i don't think we want to get into a full-fledged conflict, you look at what happened with the assassination and what happened yesterday in iran with 100 people killed. the government is blaming the u.s. and israel. i don't think the u.s. or israel had anything to do with that. this is a tinderbox with the red sea and the persian gulf being crucial for oil. i suspect things will get more tense before they get better. tom: what do we need to see from our state department? had to be extended to a greater conflict in the eastern -- how do we extend to a greater conflict in the eastern mediterranean? greg: we get involved, we cannot let shipping lanes in the red sea or the persian gulf stay undefended. this will call for tough rhetoric. lisa: tough rhetoric at a time when the u.s. is struggling to find out how they're going to pay for funding behind the rhetoric.

how much does this discussion play into the deadlines we have been talking about? january 19 with one deadline and early february with another. greg: everyone is saying we will get a deal by january 19. there is a new player in town who is not inclined to compromise and that is mike johnson. he made it clear this is not just radical republicans saying we don't want to spend more money, it is all republicans. their mantra is the border. unless there is a serious border bill, and i think there's is anything close to a deal, things could grind to a halt. lisa: people have gotten immune to the idea of complete stasis in washington, d.c. at what point does it start to matter for a longer-term perspective that there are these government shutdowns that are constantly being floated and

there is this hard-line approach being taken where it seems like there is not going to be a deal anytime soon? greg: if there is nothing or there is a delay, what kind of a signal does that send to our allies? what does that send to ukraine? what does it say to the israelis, taiwan, others? the other is just consumer confidence. consumers in the u.s. may begin to see stasis. tom: gallup did a treatment last year about how we feel about immigration. you followed this cycle after cycle, you read the history of it across decades. we have gone from 77%. innovation is good. we are down in the 60's present. -- 60%. do we believe them a vision is good on capitol hill?

greg: too much immigration is not good. last year we set tubulin -- we let 2 billion people in0 that -- 2 million people in. that is not sustainable. jonathan: let's talk about who is running the party. is it speaker johnson or whoever is ahead in the polls in the primaries? greg: they are fighting for second place. there is a chance in new hampshire that trump could slip below 50%. we could see trump as the perceptive nominee by super tuesday. it is possible this will be over in two months. jonathan: let's go to the spending bill, what does an agreement look like that makes republicans happy? greg: a de facto wall. a lot more money for agents.

sending people back. a lot will have to be in this bill. republicans have come emboldened to ask for more. jonathan: i saw a number like 300,000 for the month of december. record month. tom: matt has been great about following this debate. greg knows this as well. you are right, in the last number of weeks it has reached a new point. no matter what anyone's belief is, we are in a new study on what we are going to do. happy -- jonathan: happy new year. greg mentioned the crisis on the border and what has taken place the last 12 months. the crisis is on the border of blue states who could look from above and say this is not a problem. now it is everyone's problem. tom: i gave a speech in arizona and i am driving on the road and

i see some east coast -- and the driver took my head off. he said you are in the northeast, you know the issues. lisa: we see busloads of immigrants coming in and it is posing a strain on the social system. there is a question as to why there is not more urgency. you have republican pressure, but where is president biden on this? he has nodded that there is some issue that needs to be resolved. there is responsible immigration and this is a nation of immigrants. it is a great thing that has to be controlled. tom: the nitty-gritty is the hispanic vote, the black vote, but other groups that i don't have in front of me. this is usually dynamic

something all these politicians are following. the things we took for granted eight years ago come out the window. jonathan: something we will continue to follow. coming up, winnie cisar. the price action as follows on this aviva hundred, just about unchanged -- on the s&p 500, just about unchanged. 8:15, the adp report. the appetizer for the payrolls report. 8:30, jobless claims in america. the estimate is 260,000. from new york city, this is bloomberg. ♪ i made that. with your very own online store. i sold that. and you can manage it all in one place. i built this. and it was easy, with a partner that puts you first. godaddy.

>> from the world of politics to the world of business, annmarie hordern and joe mathieu alongside kailey leinz deliver news and analysis life from

bloomberg's washington headquarters. lisa: let's get -- jonathan: let's get straight to the scores. this in 500 struggling. negative on the nasdaq 100. four day losing streak. the last time he headed the of gains on the nasdaq was late december which was low on the tenure which was -- from 370 which was the session low to where we now are -- two were we are on a 10 year. it looks like this. the 10 year at the moment looks

like 3.95. lisa: people pushing back on his idea that the fed is going to cut six times this year would that has been a team at the beginning of this year. it has been incremental. that is what the mets have shown. it is difficult to hinge on a new narrative because traders are not good at incremental. jonathan: the two-year, 1.45. tom: adp, okay. claims, i'm sorry. tomorrow is a real story with the jobs report it that will be part of the narrative on inflation. jonathan: let's get to foreign-exchange. we will talk about apple briefly. the euro, 1.0954. a bit of dollar strength to start the year. weakness today.

let's talk about apple which was talked about following a downgrade from barclays. a downgrade to -- from mutual to overweight. every analyst has their view, is worth talking about the history. a buy stocks since 2020 and a good buy because the stock has tripled since then. lisa: is interesting to see the pylon after its rally is 50%, it is getting hard to justify given the fact that sales are slowing. since december 20, shares of apple are down 5%. 48 $3 trillion name, that is massive. tom: it is statistically massive. i want to point out that sell

side houses have a heritage and piper is different than any other bank because they had gene munster. to go from gene munster's expertise over to kumar has a certain weight that makes people either bullish or bearish on apple. jonathan: from them, valuation concerns and macro -- in the first half of 2024. apple is a negative -- apple is negative. fed officials agreeing it would be appropriate to maintain a refractive stance for some time. december's meeting minutes it could make it more difficult for the committee to reach its inflation goal. focus turning to weakness -- we jobless claims. that was the quote that about for me and you and everybody else. is that expect from the federal reserve over what we have seen

the past three months? lisa: lessons on the edge of what blood talking about. you have had a dramatic easing in financial conditions which may force the fed to stay higher for longer because the market has already given a couple of rich cuts. that is essentially what we have seen. tom: i saw a couple of quotes that were good, a few worthless, and then i went to the one that john went to. jonathan: he did. the minutes yesterday. i was shocked, but it happened. let's go to the next story. tensions thing -- tensions building in the middle east after a blast in iraq. a top general killed by a u.s. drone strike. no group has taken responsibility. the state department saying it has no reason to believe israel was involved. tom: we talked to experts, greg valliere making it clear that it is top of mind for him this

morning. every other topic is pushed aside. jonathan: kind of confusing what took place in the last 24 hours. greg: even irani -- lisa: even irani officials are not putting them on anybody. there has been a harder of the rhetoric from the white house having to do with the militants, connections with iran, having to deal with their patients being worn out. tony is going to the middle east to coalesce some sort of group to counter this. it does feel like things are simmering at a higher level. jonathan: i have lost count of how many toxey haas already done. the amount of diplomacy we have seen by secretary blinken has been phenomenal. a showdown in washington, donald trump asking this of court to overturn a ruling that would bar him from the ballot in colorado. trumpet are warning the decision

would likely be used as a template to disenfranchise tens of millions of voters nationwide. tom: i don't know what to make of this in the sense that there are other states answering this. we have two states, maine and colorado. 48 other states have not made a decision yet. where is that to point? is it two states, four states, 14 states? lisa: how many have gotten into legal issues involving our trump. anything that comes up legal dealing with the donald trump, people think this will be massive, but it will be another fundraising opportunity. this is why people are not even looking at this because otherwise it looks like he is poised to win the nomination. tom: now is the time of the new year where we find one guest knows as screwed up biggest and that is winnie cisar that wrote a research note that said the

triple leverage all cash fund was the single worst investment of 2023. i love your note on cash. everyone was in cash and you say that was the worst investment of last year. why? >> you could have been long in treasuries which was worse than cash. if you were high in cash and underweight risk, you outperformed. recouping on the 2022 losses, u.s. high yield and leverage loans part of a 25% last year, even 12 point 5% last year and investment grade up 8.5%. cash looked great at 5%. other stuff look a lot better. jonathan: do you predict -- tom: do you predict the trillions in cash that will move this year will benefit your bond world and your equity world?

>> we do. we did see some fits and starts with some of that money market inflow flow coming into spread products, including during december when we saw the massive rally driven by the fed chair's new tone on policy and a little bit of a pivot. that drove a massive rally. that was just a small drop in the bucket of all the cash on the sidelines. we don't need to even see 100 billion -- $100 billion of outflow to have tremendous support of for risk assets, including corporate credit, but a slow drip as investors anticipate lower cash yields. lisa: you were bullish on credit last year and that was the right call to make. to start this year, it has been brutal in addition to other risk.

we have seen an increase in high-end bond yields. up over .5% the last couple of days. do you feel like this has some legs, that we are producing cs a love in credit as people -- we are going to see a selloff in credit? winnie: we had that rally in december that pulled forward a lot of what we expected to materialize in q1 of 2024. investors are looking at valuations, spreads apartheid, almost to our end spread target. we are through it to our high-yield. yields are starting to rise again. we have a heavy -- issue heavy supply calendar. they are saying maybe we don't need to go all in the first week of january. we can see how earnings play outcome see how all of political confirmations -- political

consternation's are going to do not. we can feel like we don't have to be in it right away given how tremendous that rally was. lisa: can we talk about financial conditions? that was one of the most admirable aspects of the yesterday, they don't worry about easing of conditions. how much have we seen the environment for funding for companies really get better over the past month. winnie: the environment from a borrowing cost perspective has improved. yields are europe -- are lower than the recent highs. we have improved borrowing cost for u.s. investment grade, building up to 150 basis points depending on where you are. for the high-yield market, kind of similar, we have seen a decrease and a borrowing costs. at the same time, investors are demanding pretty healthy new

issue concessions. they are not disclosing their eyes and buying whatever is coming to the new issue market. there is that level of scrutiny going on correctly which would indicate that while financial conditions have gotten better from the issuer standpoint, it is not necessarily this bonanza of we are going to buy everything. jonathan: it is good to catch up. happy new year. we appreciate the end -- the update and the insight. it is worth going through it, not exactly small moves over the last three days. something like 30 basis points higher. certainly in move in the last three days. lisa: talking about the discussion around 60/40 and how it has been correlated, spreads and benchmark yields have been positively correlated. yields on treasuries have gone up, over benchmark rates so that

the risk has increased to the funding picture of these companies. that is a massive move at a time when companies are going to have to start refinancing. jonathan: we have seen a major move in the other direction. the boat has come all the way to the other side. so one-sided now in the last two or three months which is why people like max content and others are talking about the rates being this year, one of repricing rates higher all over again. tom: i look at the full faith and credit debate, and the way spreads have widened out, i am baffled by the issuance. joe lovington, i am looking at the bond ownership of apple. 4.4%. that is absurd. i don't even know what to do with that. lisa: apple is not walgreens. this is the issue right now.

what do you do with lower rated companies? this is going to be the year when people get deals done. jonathan: they might have to get some deals done. given the maturity on the horizon at there. we are from her hereby 1% of the s&p 500. a little bit higher after three days of losses. in the bond market, higher by three basis points. we need to talk about some losses beyond tech. we need to talk about the airlines. american airlines's seven-day losing streak in -- losing streak. that is some baldness kicking in for the airlines. lisa: how much does this have to do with oil rises? it is also people pushing back on the margins and domestic travel struggling in the u.s., but it also has a do with oil prices. think about how much of a gift they have been given by a decline in crude. tom: what i see is shockingly

low airfares to the affairs of a week ago. stephen trent -- jonathan: he is going to join us next time. we will continue on the bond market, going to key data 30 minutes away. the adp report 30 minutes after that, you get jobless claims at 8:30 easter. from new york city this morning, good morning. ♪ how am i going to find a doctor when i'm hallucinating?

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oh, run payroll. paying my team with gusto takes just a few clicks. they automatically file my taxes for me too. can i run payroll too? choose payroll without the pain. you got this. let's go. gobble gobble. i've seen bigger legs on a turkey! rude. who are you? i'm an investor in a fund that helps advance innovative sports tech like this smart fitness mirror. i'm also mr. leg day...1989! anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq-100 innovations. i go through a lot of pants. before investing carefully read and consider fund investment objectives, risks, charges, expenses and more in prospectus at invesco.com. >> consumers may start to pull back. we had a spending over the holiday season but we think that

might be the last hurrah for the consumers. our research has shown the upper quintile cannot make up the difference for the bottom trope. -- bottom four. we think consumer sentiment starts to begin and that will pressure revenues. jonathan: that was the head of global asset allocation at wells fargo. a weakening consumer could have a big impact on the airlines. nejra final week of the year for the second. shares for american are following -- are following -- falling. american airlines analysts is still optimistic. traffic flow, international momentum, and card strength should continue to support network airline revenue. that is the constructive view from steve and the team. tom: mr. trent owns the high ground on this.

you do this at pennsylvania and then north into the middle of nowhere where there are no airports. you go, one day i will be in the airline analyst. good morning. great to have you. what is the level of enthusiasm? you have a buy in emerging islands. people think you are nuts. hadi have any i on the industry that seems so beleaguered -- how do you have enthusiasm on the industry that seems so beleaguered? stephen: i have enthusiasm in spots. you are seeing the economic value going to united and delta. you can extend this thesis to air canada and further down south, panama's airlines where international long-haul is doing well. the network airlines have adapted very well to what i

would characterize as the new normal. we have most consumers only at the office three days a week. that has resulted in a blended travel with very good demand indicators from premium economy. your domestic is also different story. tom: robert crandall change the business years ago at american airlines. what our audience knows is that tickets are cheaper now than they were a year ago, two years ago. how do you have a buy in the stocks if they are giving away seats again? stephen: there are pieces of this space where we are not optimistic, we don't have a buy on the whole group. we are less sanguine on the nondomestic carriers. when one looks at the supply situation now, if you go back to

2019 and compare domestic diversity versus the u.s. economy, you roughly had $23 and some odd sense of economic availability her seat. -- economic activity verse eat mile -- per seat mile. the u.s. economy has grown. the argument we are trying to make is not to buy everything but to be selective in those network carriers that have very specific attributes such as very strong wealthy and cobranded card. we think this has helped them in their earnings stream, international long-haul, and this good set up in terms of their cabin offering. blended travel, economy plus has been the big mover. lisa: how much would oil prices have to rise to get less

constructive and american -- at american? stephen: delta and united are the two i like, i am less sanguine on the others. if oil prices rise, it would depend how they rise. do you get any oil price rise because there is letter global economic activity? i am not perturbed by that because you have the likes of delta and kobo that can is that in to higher end travelers. if you get any price spike, crude goes up $20 per barrel overnight, that is a different ballgame. i don't see anybody addicting that, but in that instance, that is a tough situation. it is very hard to give it -- to pivot. jonathan: lisa talked about the way that these airlines are basically credit card companies with airplanes bolted onto them.

who has nailed their loyalty program? stephen: delta's head and shoulders above most everybody. jonathan: why is that? stephen: if everyone looks at their brand, they were thinking back to those terrible pandemic days, the very last airline to finally unblock the middle seat as consumers were starting to get comfortable again. delta is the only major u.s. airline that did not dilute its equity call in the pandemic. no convertible debt offerings. no equity offerings. tom: no seats in their lounge. lisa almost fell off her chair. lisa: let's get the smallest possible violin out, but he think of the lines out of the delta line with people bringing

their american express card. how much is this going to diminish people who are loyal flyers? stephen: that is a hallmark of success. they did $4.1 billion in 2021. they did $5.5 million in 2022. they are probably going to close in on $7 billion. what they are doing on the cobranded card, they have such a good rant -- good brand. they are probably the best counterparty and good -- and get good products. lisa: how much of revenue from delta is going to come from the card effort? stephen: if one looks at the pure economics of it versus the stuff that runs through the income statement, two different pieces of flow, you could have

something conceivably five years from now. that is a good 10% to 50% higher than it is today which on the surface -- to 15% higher than it is today which is on the surface. when you think about what you get on cobranded car revenue versus main passenger revenue, the impact is big. the earnings stream is significant. once again, i am not constructive on every single u.s. airline. jonathan: the loyalists hate this, the one to actually fly on the planes. they believe if you can acquire the same status by spending on a credit card, it is a cheat code. you are not actually flying on the plane. lisa: i mix because it is a

democratization of a system where some are allowed in first and you are better and this and that. it is a social experience when you go to the airport and people start getting angry. tom: i had a round trip recently where there was not a single seat in the lounge both ways. i have got to talk to you about the dangers out there. we are financially shaken by what we saw in tokyo. your colleague in the aerospace game, the dangers that are out there, -- lived it years ago. how safe are our runways? how safe are the runways of american reports? stephen: great question. my heart goes out to the folks in japan, not just for the train accident but the earthquake

itself. when one looks at the system in u.s., we have very strict rules, on how many traffic movements each control is supposed to monitor. i don't have big concerns about the safety. their are bottlenecks in terms of the supply of air traffic controllers and there are arguments that u.s. air traffic systems to some extent is antiquated. that being said, how have officials wanted? -- officials responded? they forced to move air traffic in some places. that is unfortunate for the consumer on some levels. i am happy to see them doing that in terms of safety first. jonathan: this is great to catch up. good to see you. american airlines, seven-day

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>> the fed has signaled three rate cuts in 2024. the markets have taken that to mean six. >> if inflation keeps falling,

they will deliver those cuts, relatively soon. >> we don't have absolute clarity. >> the fed pivot has eased financial conditions dramatically. >> there is some realization that maybe we overdid the easing and there could be near term volatility. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. tom: good morning. jonathan ferro, lisa abramowicz and tom keene on radio and television. the narrative continues, an extravaganza. 815 -- 8:15, adp. job claims later. jon: 216,000 the estimate, lower than the previous week. this is a big gap between with the markets expect for rate cuts from the fed and what the fed is implying in their forecast. the data will take care of that gap as the year progresses. claims first, payrolls tomorrow.

171,000 is the median estimate going to payrolls tomorrow. tom: everyone struggling to find the pulse. right now, looking at bavaria, brandenburg, saxony, baaden. inflation is out by province. jon: regional inflation. there's a reason, lisa, and you know this, why people think the ecb will go before the fed. it's not just about inflation. it's about the economic backdrop. lisa: what you are seeing is greater weakness and the same disinflation you are seeing in the u.s., albeit different in terms of the components, but this confirms that, the idea that a gross 3.8% is above target, versus an estimate of 3.9%. a lot of people questioned how realistic it was for the fed to

cut before the ecb. now people are rethinking that. to what degree does this have a lasting narrative to what degree does this have a lasting narrative?? jon: christine lagarde tried to push back in the news conference going into the holiday. i say tried. chairman powell almost encouraged the rate cut talk. i'm not sure the fed minutes have clarified that. they are sticking with their views. ultimately, tom, that was the story. chairman powell engaged in this idea they were approaching the point to discuss reducing interest rates, but there's a difference between surgically reducing interest rates in line with the disinflation we have seen, maintaining a restrictive stance, and starting a big cutting cycle and going to 2%. jon: i will go back to our guests, to german inflation and u.s. inflation. it's about the labor market, two different labor markets. our guests are saying average hourly earnings in this jobs

report tomorrow are critical. lisa: especially because they are not aligned with the fed projections of 2% inflation. if you're still seeing 4% year-over-year wage increases, is that consistent with the ongoing price stability people are hoping for? it all those deal with the jobs market. the jobs market now is shifting but slowly and that's a hard place to be. jon: i will start with data to help you out. the 10-year gives me nothing, 2.10. i'm not getting no drama. jon: none so far. some data might change that but who knows? the euro slightly stronger, 1.0950. yields are higher in the treasury market by four basis points. equities, three days of losses on the s&p, struggling to bounce. stocks up by 0.06%. tom: the heritage is important as we talk.

truly one of the economists of the year last year, neal dunn, talking to him about an optimistic frame of mind. drew matus holds court at metlife investment management. he joins us. are you optimistic on the american economic experiment? drew: we are in the camp that there will be a recession next year. when i talk about recession, everyone thinks 2008 or 2020, and for anyone who has been doing economics for a while, when we think recession, we are thinking more of a normal recession, a 2000 or 1990's type recession, so i wonder how many people in the soft landing campell claim victory if we get a mild -- landing camp will claim victory if we get a mild recession. jon: metlife, i know it's a bond

portfolio, yield driven, but what does your analysis mean for equities? drew: if you are expecting a recession, you are probably migrating or in a risk off mode, so a time for caution. that being said, timing is everything, and frankly, people who have been risk off have been missing out, so, you know, i do think one of the interesting things in my mind about the employment report and inflation dynamics we are talking about our last month we had a big drop in the unemployment rate, inflation still 3.2%. if the unemployment rate keeps moving lower and inflation is about 3%, we should not be talking rate cuts at all. we should be thinking about whether they will have to restart the cycle. so the fact that everyone has coalesced around this idea that inflation is moderating and that

the movement in the unemployment rate only is important if you are worried about a soft landing scenario is misguided. jon: a whole generation of investors conditioned by two massive shocks, the great financial crisis and the pandemic of 2020, and the response to those two chocks, to take interest rates to zero. do you think we have fully shaken off those periods? because i am with you. when inflation starts to come down come as you see it in the last few months, when you start to see employment creep higher and get closer to 4%, there's a surge to say rate cuts are coming back. do you think we have shaken that often the last two years? drew: i think if there's one benefit, i think you are seeing that globally. it's going to be the one positive dynamic from the high inflation environment we have been living through. one of the fascinating aspects

of it all is this dynamic of, you know, people who have not experienced a normal recession. and it is trying because we trade in certain ways. we talk about a recession and think everyone understands what we mean but instead they are thinking back to 2008 or 2020 and it's important -- there are some similarities. when things break in the economy, they break, so they happen fast. this idea that we are going to grind higher, usually you jump higher in unemployment and stabilize around a newer level. that's something we have to watch out for. you know, the rule, which i love, if you do it by state, you know, in october, we had six states and recession. we went up to 11 despite the fact of the unemployment number went down. there's data issues and things like that but the trend is towards a broadening of the weakening and i think that's

also consistent with the fact that when you look at average weekly wages, a quarter of americans saw a decline last month. that's not consistent with the movement in the unemployment report we saw. lisa: if we are talking about a lot of traders who don't how to deal with a regular recession, how is the market mispriced for that sort of more normal circumstance of a downturn rather than something dramatic, cataclysmic, like what we saw in 2008? drew: the problem is they are dismissing the more normal recession and assuming it will be a soft landing because they don't see the signs of stress that would be consistent with the financial market recession. and so there's almost an overly optimistic tone because people are looking at data that may be is not particularly strong or, in the case i just mentioned, the unemployment rate is dropping and inflation is still about 3% and everyone is talking about how many rate cuts we will get next year.

in a normal environment, if the inflation rate was about 3% and the employment rate was dropping -- the unemployment rate was dropping, the tone has to change from the fed in that scenario. the fed will not be able to assume that the unemployment rate drop. . so then they have to worry about a tighter labor market. they have to look at average hourly earnings numbers, which are not great for the inflation outlook, and they have to think about do they have inflation contained or do they get the low end and the rest still to come? lisa: do you think the rotation in consumer cyclicals and small caps was misplaced and if those will get punished as we had toured what you say are signs of a more normal recession? drew: looking at a recession, you should be looking at a risk off mindset. there's opportunities in every asset class no matter the conditions, but broadly speaking, you are expecting an

increase in unemployment, expecting some firms to fail, some defaults to occur. that's more of a risk off environment. that's more consistent with different asset classes. jon: you said something when we were talking like higher interest rates may actually be the solution to the low growth, low inflation story we were stuck in at the time. we have a case study now over the last 18 months. what are you seeing take place with that in mind? drew: i think you are seeing a normalization of consumer behavior. so one of the problems you have is that if you push for the investing rate too low, what happens is people who are saving, what are they saving for? primarily retirement. from the time they entered the labor force to the time they leave it. if you have an extraordinarily low ten year yield, they have

to save less. the optimal rate for the 10 year note in terms of minimizing savings is about 4%. that is where you want it to be where people actually feel incentivized to save but they are also maximizing their consumption function because they feel like they are getting a good enough return. and we are seeing the experiment play out and i think you are seeing positive dynamics around the world everywhere where rates have moved off the zero bound. it should not be surprising to anyone that that kind of thing is occurring. abnormal rates lead to abnormal responses on the part of consumers and other actors in the economy. jon: appreciate the clarity. drew matus of metlife. good to catch up. welcome to the program. the s&p 500 just about unchanged. positive by 0.04%. we are about three minutes away from the adp report. then on to jobless claims later this afternoon. tom: guess what?

weekly claims matter because they are weekly. it's one of the few pulsing data points we get. i have trouble with it because to me it's asymmetric. it's just about claims where maybe others are more symmetric. the bottom line is its frequent data and that matters. lisa: i have been a broken record this morning. i have talked about incremental data and the idea we are seeing incremental shifts upward in the initial jobless claims. is that normalization or something we should be concerned about? i don't know. jon: i'm glad you brought this up. the answer is on a probabilistic basis of 30, 40, 50 people, guess what? there's this jumble of narratives and we have shifted. there's just been this shift. who knows? i have no clue. jon: i remember, early december, sitting around this table with you and saying, what's the difference between a welcome easing in the economy, in the

labor market, and an unwelcome deterioration? i was thinking are we close to that inflection point? then claims dropped to 203,000. we are still right in and around those levels, tom, which historically come exceptionally low. tom: to me, it's just the economy off the pandemic. one answer is there's a new productivity out there we don't understand and may not for 10 or 20 years. jon: stay tuned for this. breaking down the adp report and jobless claims. mike mckee will be around the table in a moment. from new york, this is bloomberg. ♪

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>> the challenge for the fed is they still want the soft landing and we all want the soft landing. that will be the best outcome, but what is beginning to matter is they have sucked so much liquidity out, we have gotten to a point where we are seeing strains in the plumbing. jon: looking ahead to the data. payrolls tomorrow morning. we got the appetizer. upside surprise on the adp report. mike: who ordered the supersize? 160 4000 jobs were added to payrolls in december. that's well above the 100 25,000 that had been forecast.

they revised down last month's number from 103,000 to 101,000 but they don't match up well with what was the labor department's number last month, which was 150,000 for private sector jobs. we will see how this turns out in the long run. it feels like payrolls largely grew in the service providing industries, which is kind of what everybody expects, education and health care, 42,000 according to the adp numbers. leisure and hospitality. those areas have been growing on a regular basis each month. they are generally lower paid, but we are seeing, according to the adp growth numbers, only a slight decline in annual pay change, 5.4% down from 5.6% for those who stay in their jobs. job changers 8%. so a stronger-than-expected adp report. i'm going to go with lisa's

analysis, like, what do we do with this? lisa: that was her response to this. jon: 164,000 the number. the price action off the back, just a collective shrug, what do we do? the s&p 500 basic -- basically where was. yields near session highs. higher by three basis points at the front end of the bond market. getting closer on the 10 year to 4%, five or six basis points. lisa: basically leaning into this idea that maybe the big risk factor is the economy does not slow as much as expected and we don't get as much disinflation from things like a softening labor market. this sort of speaks to that but that was my first thing. what do we do with this? because it's unclear, the correlation between adp and nonfarm payrolls. we know they are hiring more.

manufacturing kind of flat. ok. jon: ok. lisa: i don't know. jon: economists on wall street everywhere. mike: it is not adp's fault. lisa: i'm not saying it is. jon: he will defend them now. mike: i don't know if this is a defense but the issue has been for people on wall street and economists is how fast can job growth continue to be and inflation still come down? so the whole phillips curve debate is still underway and it looks like phillips is losing at this point, so if adp comes in strong, that does not necessarily mean things are bad for inflation. tom: we were talking about drew matus lecturing me on the weekly value of claims. is that still true? mike: on a trend basis. it does suggest that it this point we are not seeing any kind of real deterioration in the labor force.

the number we will want to watch is for tomorrow, the claims number for the survey week, which includes 206,000, even lower than today, so it all points to a fairly strong report tomorrow. jon: mike mckee, stay close. jobless claims 10 minutes away. payrolls coming up tomorrow morning. the estimate 171,000. tom: an extravaganza. in two days. carl, economist at bnp paribas. adp then claims than on to the jobs report. what matters among these many reports? carl: what matters -- happy new year -- what matters in the labor data is the interesting new -- interesting nuance in the details.

there's a real distinction between rising layoffs and a lack of hiring and it seems like the latter, that lack of hiring, is really what's driving the labor dynamics at the moment. we saw that in the challenger layoffs data earlier today and the last several months. that's why jobless claims are trending sideways for a very extended period of time and not giving us a lot of forecasting information for nonfarm payrolls and rather it's just a reduced appetite to add workers that seems to be driving the labor market dynamics at the moment. lisa: which is the reason jolts data yesterday and particularly the >> number is interesting because it confirms -- the quits number is interesting because it confirms employees are feeling that. what does that signal to you in the terms of whether this is an inflection point rather than something that could accelerate

more significantly with greater weakness? carl: i think the trend in the jolts data, the quits rate in particular, openings to unemployment, all this signals there's a great normalization happening at the moment, so i don't think -- you mentioned inflection point. i don't think we are at that at the moment. if we look at the hiring trend, it's been a linear trend since the start of last year, so for more than 12 months now, just a linear fit, if we look at the moving average on payrolls. there is a slope to that line and it's aiming lower, so there's a hissing sound in the labor market. we are losing altitude to the tune of about 15,000 per month on nonfarm payrolls if you look at that broad trend, but that's an extrapolation of the linear trend, so that's more normalization, not getting to the inflection point where things break down. that could happen in the first

part of the year but i think it's going to be a few more months before we start to think about that inflection, because if we are looking at non-farm payrolls, that's still a healthy income and wage dynamic for the economy, so that would provide a big buffer against that nonlinearity developing. lisa: can you help me out? when i got the adp number, which we all got, i did not know what to do with it. what do you do with this? carl: i think we look at the composition of adp, whether looking by firm size, which we have seen a concentration on middle sized firms contributing to job gains over the last several quarters, actually, that factors into the diffusion of job gains, which was something mckee highlighted just ahead of me. when we look at the diffusion of job gains in the economy, this is often the canary in the coal mine, so to speak. the diffusion of job growth last

month excluded has been continuing to deteriorate. this again signals that the labor market is firing on fewer and fewer cylinders. there was a slack in diffusion last month with the auto strike, workers getting back and resuming production, but that longer-term deterioration in the breadth of job creation is something that disturbs me that could potentially point to a soft landing being more softish than just a soft. jon: to build on some of that just quickly, because we will get claims in five minutes, a line in the sand or you get concerned, 250,000, 300,000? carl: i think if we start to see a 15% to 20% increase in initial claims relative to the trailing quarterly average, that's when i start to get nervous. mind you, the claims numbers are

at extremely low levels, so that gives you an easier path to a big percentage increase, but we need to see a sustained pickup and claims, not around -- in claims, not around holiday weeks, when there's a pickup in volatility, but on a sustained basis. on continuing claims, there seems to be seasonal adjustment issues. jon: stay close. we will break it down in a moment. carl riccadonna of bnp paribas. jobless claims coming up in a moment. the estimate 216,000. equity futures unchanged. from new york, this is bloomberg. ♪

jon: jobless claims data just seconds away. mike mckee to break that down. carl riccadonna of bnp paribas. that just seconds away with the equity markets shaping up as follows, the s&p 500 positive by almost .1%, yields higher by five basis points on the 10 year, following an upside surprise on the adp report. claims data, mike mckee. mike: there's your downside surprise, the number that is supposed to be better if lower, down from 218,000, the prior

number without revision. continuing claims, 1,855,000, down from 1,000,800 75,000, so better numbers overall. i will put in the standard disclaimer for this time of year that holidays distort the seasonal factors and eight it can be difficult -- and it can be difficult to get an accurate read on where we are but you will say not much has changed in the labor market looking at these numbers. the survey week, that includes december 12, the number was 1875, because that was last week for continuing claims, and it was 206,000 for the headline number, so we are still seeing some enormous progress here. last week's claims numbers were revised up to 200 20,000, which would have gotten the retention

if that had been the case -- up to 220,000, which would have gotten your attention if that had been the case. jon: it is one data point. let's push it through the bond market. yields at session highs. on the 10 year, up six is -- up six basis points. if you put this together with a strong payrolls report friday, it will speak to the max kantner of hsbc call, particularly if you see more of this. certainly, that's an early read on maybe what is to come. lisa: that is what i was going to say. adp followed by this and now nonfarm payrolls next up to see whether we see that strength, that stronger-than-expected labor market. how can you price in six fed rate cuts with, you know, hiring at a decent pace, unemployment rates near record lows, not

really showing signs of cracking? it does not really make sense and this to me is emerging as the theme. jon: is this labor market a reason to stay hawkish? does this lead to higher wage pressure? mike: it depends on how you define hawkish. if you define it as the fed does not cut interest rates as soon as people think, yes. it probably puts pressure in that area. we will not get another payrolls report before the next fed meeting, because it's january 31, so this is what they are going to take into the meeting room. if you define it as raising rates, i still don't see that, but we will see what happens with the average hourly earnings and cpi. tom: i have a broader question for carl riccadonna. tomorrow, how do you interpret average hourly earnings within the 47 other measurements of wage growth that are out there? carl: average hourly earnings are telling us that we are not area in -- not there yet in

terms of the fed being able to declare mission accomplished. 4% is still too hot for inflation to be sustainably at a 2% run rate, especially if we look at the core numbers, and even more important is the employment cost index wage and salary component. it needs to be a 3% or less to be consistent with 2% core pce inflation. so there's lots of good progress. that is looking in the right direction. but there is still further room to room before we can feel more comfortable. tom: i have to go to 60,000 feet. peter drucker 1991. do we have any clue given our labor day data we have now with the productivity, efficiency, efficacy of our labor? i would suggest we are flying blind. carl: i think we are still flying blind post-pandemic, tom,

and we have seen some wild springs in -- wild swings in productivity due to labor shortages and lots of factors distorting numbers. that big surge we saw in gdp growth in q3 distorts productivity. that's not the beginning of a trend. that was a one-time flash in the pan. we can see that in the forecast for q4, so there's still a lot of instability and noise we have to look through to get a clear perspective. now, what i think does give us some sense of a trend, when we have extended periods of labor scarcity and high labor costs, typically, that pushes businesses and encourages them to make the kind of productivity enhancing capital investments that lead to a productivity boom, but we are still not out of the woods yet. the labor data does look to be moving to a more balanced state where maybe we have less labor

cost pressure, six months from now, and that would say maybe there would be less of a flareup that we might be anticipating. of course, ai is a wildcard but it's too soon to be factoring that into the macroeconomic data on that kind of scale. lisa: if you are just joining the program, we got a one-two punch of better-than-expected jobs data, the adp report coming in better-than-expected, initial jobless claims lower-than-expected. you see the move with the 10-year yield creeping closer to 4%, 3.99%, just less than one basis point away. carl, how much are you looking at a market that is screaming that we are not going to have any recession anytime soon without some kind of exhaustion's stock? carl: the market signal is very important but that market signal will be subject to the macroeconomic data trend and we are certainly moving to a slower pace of activity than where we

were, for instance, in q3 of last year, so it's a slower profile in the first part of this year, which will mean less hiring. that puts pressure on margins and revenue gains and whatnot. those things tend to slow down as well. so it will be a challenging macroenvironment, which will be an environment in the first half of this year where the macro variables drive the narrative. we will get some clarity on whether it's a bumpy landing, soft landing, no landing, etc., so i think we have to pay careful attention to that tug-of-war between what markets are seeing in terms of fed easing and whatnot and what the macro data are suggesting, and if we look at the claims numbers, this is consistent with what we said ahead of the data, which is not layoffs cooling the market, the state reduced appetite -- the market, just a

reduced appetite for hiring. lisa: jay powell dismissed the idea of financial conditions in the fomc meeting and inserted that back in, where suddenly they are worried about this easing in financial conditions. do you think if the implied rate cuts we have seen make it more difficult to achieve price to lability with on -- price stability with ongoing labor market strength? carl: i think the easing conditions, which is substantial , equivalent to fed cuts, that complicates the exit process. the fed knows that when they shift to the risk of being more hikes to moving to a lower rate that there's always going to be that easing of financial conditions that takes place, but this does complicate the process. we heard that in the minutes,

the line that said the easing of financial conditions, the scope or magnitude of it could jeopardize the fed's path if we have a real read acceleration in the economy. then that becomes more difficult and it will slow down the fed in that process. what was interesting in the minutes is usually the fed has boilerplate language of if it is hotter we will go higher and cooler lower and they did not do that. it was on page eight of the minutes when they talked about there's a possibility of more hikes. they then went on to say there's a possibility we could take longer to pivot towards cuts but they never added the other side of the scale, which as we could go sooner if things are cooler, so that tells you they are sensitive to the market reaction to the december press conference. tom: the fact that we were all wrong last year and got this wonderfully bland economy, now

3.8% unemployment is the estimate for tomorrow, are we fully employed? there's a lot of americans flat on their back. are we fully employed in american? carl: as we look at the aggregate data, the unemployment rate below 4%, if we look at the wage trends, it's apparent that we have been in a period of floral -- of employment and that explains those wage pressures. now the labor market is cooling so while we may be fully employed now on the eve of the december jobs report, i think there could be a hotter debate about whether we still are at full employment because we will see those wage pressures coming down as the unemployment rate drifts higher, and that will create some slack, which is a welcome development after the last two years, the

post-pandemic environment, to get us back to 2%. of course, full employment is important, but as jerome powell reminds us in nearly every press conference, price stability is the bedrock of the foundation of a stable economy, so we cannot just push the and employment rate as low as we can go without taking into consideration that trade-off with the inflation dynamics, and that was something that was highlighted in the minutes yesterday as well, where now policymakers are starting to think about the trade-off on the dual mandate, you know, so there's more waiting to both factors on the dual mandate relative to where we were over the last several quarters. jon: what are the numbers for you in the team tomorrow, expectations? carl: i am eyeing this hissing sound in the labor market. we are gradually losing momentum. i think 165,000 on the number, just slightly below consensus, and i would watch for some slack

in the unemployment rate. i think may be .2% increase up to 3.9% with persistent wage pressures in the background. keep in mind inflation is a lagging indicator and so is labor inflation. jon: carl riccadonna, appreciate it. carl riccadonna of bnp paribas. the 10 year really close to 4%, 3.9950 percent. on the back of the upside surprise on adp and the downside surprise on jobless claims moments ago. bramo, 202,000 on claims going to payrolls tomorrow morning. lisa: flip a coin for 2024 just based on the price action of a couple days, it would be people got over there is in terms of the potential disinflation and weakness -- of their skis in terms of potential disinflation and weakness. jon: if you are just joining us, the s&p 500 turning negative on the back of some of this, down 0.1% on the s&p 500.

that follows three days of losses on the s&p. we return to the quote we got from max kantner of hsbc yesterday. we continue to believe that from a multi-asset perspective the biggest risk is not from a sudden deterioration in earnings or activity but another repricing in rates. tk, as we commence a new trading year and start 2024, we are close to that repricing now. tom: i think that will be quick. five standard deviations. pushing back against a lot of the caution, gina martin adams on equities was blistering yesterday over the guesstimates, the certitude that earnings will come in short. she said the fact is, at the point in the cycle where we are, you do get out to high sigel digit, double-digit earnings growth. jon: michael mckee final word on

the data? mike: it would suggest we are at least in status quo, which has been good news for the overall economy, because we are not seeing inflation rise but we are seeing employment strong. that is what the fed and the soft landing people want to see. jon: payrolls report tomorrow morning, 8:30 eastern time, the estimate in our survey currently 171,000. the data so far, so good on the adp report and jobless claims. coming up, you cannot say the same thing about the auto sector for gm or ford. the latest with david welch on the auto industry next. ♪

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jon: how much of a reality check are we getting from the industry from the likes of gm and ford?

>> a big reality check. they have pulled back from the ev strategy in detroit and the problem is do consumers want ev or just a tesla. i think there's been more moderate demand we are seeing across the board. jon: that is the question we have all been asking over the last several quarters. do consumers want ev's or just a tesla? much more important question in america we will get to in a moment. a lot to recap. on the s&p 500 as we go towards the opening bell in 43 minutes time. equities turning negative on the s&p. we've had three days of losses on the s&p 500. we may now add to it off the back of some data in america in the last 50 minutes or so. upside surprise on the adp report. the right kind of downside surprise on jobless claims, 200-2000, the estimate 216,000,

and on the 10-year yield, close to 4%. lisa: the macro signals now are that the u.s. economy is doing well or at least staying on trend and we are not necessarily getting any kind of inflection point, as we were hearing from carl riccadonna. what i find interesting are the micro stories and the competitive advantage some companies are having. tiktok is eyeing a shopping business on amazon's turf. reporting they are going to build that out in the u.s. amazon shares down this morning. also tiktok working with peloton, a u.s. company, to roll out some initiative, and their shares are up more than 7%. this is the interesting dance and it has geopolitical consequences and all sorts of competitive consequences that feed into the auto industry as well. who gets the upper hand? jon: if i'm on a peloton bike in the living room -- tom: if i'm on a peloton bike in the living

room, that's geopolitical consequences. lisa: it is. jon: is that what happens? lisa: there have been studies. forget it. hold on. there are questions about whether you want tiktok having -- in the u.s. and you have sorts of that you have all sorts of politicians -- and you have all sorts of politicians talking about that. and you have it coming into your bedroom telling you how to work out. that has geopolitical consequences. jon: we are excited about this. tom: all ramped up. in dearborn, in detroit, is david welch, our detroit bureau chief. david, i want to look at the gross business. under 16 million unit sales this year. i guess it was a pretty good year. i go to the screen and i got the typical small foreign car,

$20,000. i look at some kind of fancy or u.s. car, $10,000 more. how does price play into the auto business in 2024? david: right now, it's everything. you have high interest rates. even though sticker prices have come down, the average vehicle is around $48,000. that's very expensive. that means you have payments well over $700 a month, which means these are affluent people buying new cars. it's not a thing for the poor and certainly even middle-class people struggle to buy one. we saw gains in nissan. gm has done well with a new chevy. these cell in the 20,000 to $30,000 range. those are pretty affordable for people. and so the companies in that range can get some buyers

because there are not that many affordable vehicles. tom: let me go back to first principles. my first interview with bloomberg ever was with a guy named rick wegner who had a small auto company detroit. i will ask you the same question i asked him decades ago -- why can't we build a cheaper car to compete with the rest of the world? david: the companies can. i think they have just gotten away from it because the profits are not there. you take the chevy t-rex. give gm credit because they have tried to come up with a vehicle that can sell for a little over $20,000, but they build that in korea. the profit margins on those vehicles are so thin that you do need to get all the parts and labor savings you can to make a buck on them and basically they are just vehicles to get people into your brands, hoping they

will have a good experience and graduate on to something bigger, pricier and more profitable later on. jon: let's ask the question that dan ives asked yesterday. do consumers want ev's or do they just want a tesla? what's the answer to that at the moment? david: your third quarter ev sales in the u.s. were up 50% year-over-year. tesla's sales were not up 50% so that means somebody's getting the above 30% or whatever it was that tesla group. so they do one tv's. the numbers are not very big now. the problem is the other companies' ev's are $80,000 or $60,000 and hyundai and kia do well with them but they are not cheap either. prices are still too high for the non-tesla ev's. and the charging network is still not there. getting better.

the deal with tesla where everyone will be able to use their charging network will help and the investment by automakers to build out a network will help but that is not really taking hold yet. as itdoes happen over 2024 , people will see more charging stations, but price, variety and the charging network are still holding back the mass-market buyer from going electric. jon: how have things changed to start the new year? david: it's shrinking down to 13. some of the companies are trying to resource keep parts to -- therese or parts to get them eligible. they should be able to get those qualified in the first quarter sometime by resourcing two parts for those vehicles that would get them under the qualifications. you will see some of that but

it's not going to be raining dollars from the federal government. companies will have to work to get that money for their buyers. lisa: if byd were able to sell their vehicles in the u.s. at cost without having to pay tariffs, how much cheaper with a b than the average electric vehicle in the u.s. -- cheaper would they be than the average electric vehicle in the u.s.? david: it's tough to say because they have not met the safety regulations. you have to do a lot of testing and emissions testing and that sort of thing. i'm not sure their vehicles meet that. once you do, it does at some cost. your vehicles have to be roomy, have all the qualifications that american buyers want. that would at some cost. they would still be cheap. they have a great cost advantage, don't get me wrong, but it's not the flick of a switch most people are thinking. but i think sans tariffs they would be competitive and it would be scary for domestic and japanese and korean automakers.

lisa: i wonder how much the price is what defines how much people are buying or not. the more expensive vehicles might have a bigger audience because it will be wealthier people who can paling cash. how much has the non-cash buyer base for autos disappeared in the face of interest rates or borrowing costs north of 10%? david: they have not disappeared but it is tougher and leasing is moving up. that's one way of getting that payment down so that's one way to handle that. people are probably putting more cash down. the used car market is still strong. trade-ins -- it's not historically strong but you're still getting good prices for a used car. that's good currency to trade in a vehicle and buy something. i think one of the reasons we are seeing a 15.5 million unit market in the u.s. instead of the old days of 16 or 17 is because of pricing and cost and only the affluent buyers can

really afford that and what's keeping the u.s. market aloft is the rich. jon: david, thank you. david welch out of detroit on ev's. let's put a bow on the morning. the data out of america. two small data points. is it the recipe, the early sign, of the drip, the water torture, for bond market bulls, if you get more of the same? claims, adp, onto payrolls tomorrow. lisa: that seems to be what the market is set up for given the trade the last couple months. what happens if people question the rate because they price and not because of fed pushback but because the data is inconsistent with that view? tom: looking at atlanta gdp, 2.5%. mint claims. 3.8% unemployment. good morning america. jon: good morning, good morning. from new york city morning, good

morning. ♪

manus: from new york city, i am manus cranny. the question you need to ask yourself as these futures dip ever lower and yields pop higher, has goldilocks left the building? "the open" starts right now. >> everything you need to get set for the start of u.s. trading, this is bloomberg, "the open," with jonathan ferro. manus: coming up, stocks looking