stocks tumbling lower amid a global selloff. the s&p following the most in a month. joe: the question is "what'd you miss?" scarlet: does the fed's path need to be re-examined? joe: plus as the fed pairs back on monetary easing, what does it mean for emerging markets, especially china? alix: european creditors need a release aids to payments. we get a live update from brussels. began, of course, with the markets. off the jobs report, people betting a rate hike will happen december. people forgot what happened on merged ahead.

rates are rising, 2.3% for the 10-year. joe: it is weird, the delayed reaction we are seeing. everyone is attributing the selloff to the realization a rate hike could really be coming. but who knows? sometimes the markets to sell off. alix: i don't buy it. you get the jobs number and than four days later we are going to have a jump? i don't buy it. joe: the markets are noisy. sometimes they go up. sometimes they go down. this pharmaceutical company -- joe, you pointed this out. with significantly more downside then valeant, and this company was a far worse offender -- research tweeting

this stock is going to fall. paulson, janice capital, vanguard, black for, apital, thenanus c blackrock, thek top 4. alix: i want to take a deep dive into the bloomberg terminal. typically this is where investors want to go for safety. as a thuman here, you can see they are not holding up. safety isave gone for not going to work and this is relatively a broad-based selloff. too dramatic, but it's interesting the strategies people absolutely loved -- health care, classic safety moves are just not working out. alix: this is not a new thing. joe: all right.

i want to dive into my terminal. this is short positions on 10-year treasuries. obviously, when you are short, you are betting yields are going to go up, which they have been lately. in recent weeks, there has in a spike in short positions on treasuries and this was before friday's jobs report. obviously they probably did pretty well. we will see next week when this data is updated whether more traders have filed into treasury shorts. scarlet: for my deep dive, i want to look at the october jobs report. let's put it in context. the white line is the nonfarm table numbers. these are the payroll numbers -- the reported numbers. between whatg gap was reported and what was expected on the far right side. here's another way of looking at it. i'm going to move this pan a lot

and show you the ratio between and the average estimate. anything above this horizontal line is a positive surprise. below it is a negative supply. that is the highest since october of 2015. it's really ominous what happened the last time we had a huge upward surprise. it just goes to show how much this data can -- scarlet: and the loss. joe: totally. scarlet: you can see these charts and more at our twitter handles. alix: the jobs report paving the way for the december rate hike, but what will it actually look like? you wrote in a note on friday that investors for the first time in months are thinking that the complacency on the fed rates

that needs to be re-examined. scarlet: stephen, is that what we are seeing in the massive selloff in equities -- steven, is that what we are seeing in equities? the question was whether it would be shallow or ofn shallower, a big segment the market thinking it was a waste of time to talk about. friday's numbers showed a couple of things. one was the growth rate, maybe the u.s. was not as susceptible as what was happening abroad. everybody was talking about the turmoil in financial markets over the summer, but the jobs mucht did not seem to pay attention. and we raised the possibility for the first time with that 5 that maybe we are under fold employment, which is

causing wages to pick up, -- under four employment, which is causing wages to pick up. what would that look like? let's say we see ongoing inflation in wages. what would it look like in terms of the heights we see and what would that due to the market? decidedin theory, if we the jobs momentum was still to the downside, the fed would have to get you neutral as quickly as possible. i think most people view neutral as 2%, 3%. no way they would get there quickly. but it would change the entire orientation from how shallow to house the -- how steep. at that, you look can see how much lower the market expectations versus the but do you think it is

totally wrong right now? steven: the distinction has always been weighed. ande was a weighted average this was the most likely outcome. with stronger payrolls, the most likely outcome is closer to what the fomc has been thinking and the market has nudged up. let's say the fed does lift off in january and payroll comes up 50,000, 270,000, -- 250,000, 270,000. do you really expect the fed to wait until june? joe: high frequency economics headache great chart pointing chart had a great

pointing out that the fed has been pessimistic about job creation and unemployment continues to fall faster than the fed has predicted for unemployment. steven: that's actually right. to figure out what the potential growth of the u.s. is, right now the estimate is 1%, which is amazingly low. it has never been this low in 60 years. could say the fed has been overoptimistic on growth, but they have underestimated that slack is getting reduced much quicker than they anticipated it would take. alix: so, how low does the rate go then? steven: it has never been the does a hikingfed cycle and the on employment begins to turn up faster than two, to an half years.

the labor market has a lot of momentum. it could go a good deal lower before any hiking cycle has an impact. alix: so, 4%? steven: oh, yeah. alix: lower than for present? steven: i don't see why not. -- alix: lower than 4%? don't see why not. the market was buying into the fed's that there were not bodies to employee anymore and we were not going to create any jobs, if that on and create jobs, rate will fall very fast. how critical is it for the fed to unwind its balance sheet so we can get to 4 trillion? does that matter? steven: i think the fed will be the balances about sheet. it comes to the short end

versus the long end -- the short end gives them a margin in case the economy does begin to slip, to use conventional monetary policy. that is important to them. you one thing -- obviously are focused on the currency area, and you talk about the , u.s. between government and eurozone yield. talk about the sensitivity of the euro versus the dollar to that spread. what is going on here? everyone was wrong about the degree of convergence during the year. we accepted there was divergence between the u.s. and eurozone that would cause the dollar to strengthen. instead we got much less divergence than we expected. statistical with analysis and say, what is the responsiveness of the basis pointso a 10 move on the 10-year yield, it is

lower than it has ever been. i think the market may have lowered the bar. it used to be they would not get out of bed for a 200-basis point differential. alix: ok, great stuff. stephen engle under -- steven englander is staying with us. ♪

alix: i'm alix steel. "what'd you miss?" let's get right to mark crumpton with first word news. mark: the president of the university of missouri has he handleder the way racial issues.

over 30 african american football players say they would not take -- said they would not take the field until he quits. israel's obama tells prime minister they can work together to fight terrorism, despite their differences over the iran nuclear deal. the president met with benjamin netanyahu in the oval office today. it was the first time the two met face-to-face in over a year. also on the agenda, the stalled israel-palestinian peace process and military aid for israel. a jordanian policeman opened fire on foreign trainers at a police compound and as many as eight people were reported killed. the twoicials say americans were part of a state police training program. the u.s. will be working with jordan to conduct a full investigation. donald trump's appearance on "saturday night live" lifted

the ratings to the highest level in four years. he will be back on the year tomorrow night when republican presidential candidates debate in milwaukee. you can get more on these and other breaking stories 24 hours at the new bloomberg.com. i am mark crumpton. back to you. scarlet: thanks so much. we are back with steven:, the head of -- we are back with steven englander, the head of g10 global research at citibank. the dollar was down versus all of these currencies with the exception of the yen. take a look at emerging markets ,- and the dollar was mostly up except for the brazilian peso. does this mean that the risk is not priced in in emerging markets, but it is in g10

currencies? steven: when the numbers came out on friday, i think the idea thatght into the be dovish hike was likely and the fed would be able to convey the path would be very shallow, and the market would buy into it , and as a result it would g10.rt em relative to market isday, the starting to get concern and says, wait a minute, even if she says it's going to be a dovish hike, do we really believe or if numbers come in on the strong side? all of a sudden, we have to think about the steeper yield curve, which is very sensitive to that kind of rate move. currencies,

paradoxically, are somewhat safe havens. there is a little bit of process thinking on the g 10 -- g10 side. the market is thinking where a vulnerable if we have to bring in the expectation of the hike. scarlet: most people communicated that the fed communications were short of ideals. does the evidence point to the need for liftoff? how much new wants does there have to be when janet speaks in december? steven: i think she will have to try very hard to keep the dovish liftoff. think the fomc would like to keep the market relaxed about liftoff, and not overly nervous this is going to result in a big asset market selloff. out, ifn, as it turns

wasaugust-september period just a growth pause and the market overreacted and the u.s. economy has more momentum, the market might easily conclude, she might talk dovish, but at the end of the day, rates may move quicker than they are telling us and we will continue to see this market action. at the argument that we are running out of labor slack, wages are starting to butt up, faster hike -- people point out the labor force per dissipation rate is incredibly low. there are all sorts of -- labor force are dissipation rate is incredibly low. they're all sorts of shadow slack out there. what you make of the labor force participation rate? steven: it has always been very hard to model labor force participation. rates amongn

workers age 25 to 54 has been going down. olderipation among workers has been going up. you have to ask the question, if there is really such voluntary cyclical employment, why is it that older people, who are normally this advantage in the labor market, can find jobs? it is structural, not related to demographics, but maybe the tax system, not to families at low wages. i doubt there is very much there that is cyclical. alix: why that is important, that means there is not slack in the market and wages can pick up faster than people think. is that accurate? steven: if you want more people in the labor market, you have to

push wages up much more quickly than we have been seeing recently, which would prompt the fed to continue on its hiking path. is the headline unemployment rates everyone has looked for -- you should look at the gap between u3 and u6? u6.: you love that hurts you to say that. u3 is as good as any measurement we are going to get. i think that was pretty good. alix: are we in a situation where a faster rate hike cycle from the fed strengthens the dollar, strengthens financial editions, and then the fed has to walk that back, be more ?ovish sort of a catch 22? steven: one of the retrospects

that thesummer may be market is not as sensitive to tightening conditions. we have the mother of all tightening conditions in 1994. those of us who were in the market still feel the bruises from that. , despitearket went on the fact that the bond market was trashed at that point. there is a tendency to overstate the sensitivity of the economy some of both to the dollar and relatively small changes in financial conditions. scarlet: all right, steven englander, thank you for joining us. much-needed perspective. trend in theard market with major implications for investors. will it become the new normal? we have the very nerdy answer next. ♪

alix: i'm alix steel. "what'd you miss?" something strange is having in the markets. swap spreads have now turned negative. tracy alloway has written about this. can you talk is happening in swap spreads? sure. how come you never asked me to talk about the s&p 500? there are these things called interest rate swaps that they rateo exchange fixed payments for floating rate payments and vice versa.

and the swap rate is what they paid to do that. in theory, that swap rate is supposed to be above the yield on equivalent u.s. treasuries, because the swap rate involves significant counterparty risk. want to be compensated for that risk, compared to the risk-free treasury borrowing rate. in recent days, that has not been happening. swap rates have fallen to equivalent u.s. treasury yields. words cannot express how much of an odd occurrence this is in markets. it sort of in a merit -- an embarrassment for financial markets. this should not be happening. yet here we are. scarlet: has this happened before? tracy: it happened in 2009 on the 30-year swap rate. the shorter and maturity yields are at record lows now. joe: it should not be happening. why is it? tracy: this is not going to

satisfy you at all. there are a lot of theories. a lot of people have been talking about selling u.s. treasuries, which would raise yields. people of been talking about lots and lots of corporate bond issuance, which would increase demand for swaps to read and a lot of people -- this is probably the biggest thing -- a lot of people are talking about alan's sheet at -- balance sheets at the dealer banks. when you get a big dislocation like this in the market, someone ituld come in and arbitrage out of existence. they should traded away. that is not happening because the hedge funds you need to do that have to borrow funds from the banks and the banks do not have the balance sheet capacity anymore. and that has to do with the repo market and deregulation. are the what regulations constraining the ability of the hedge funds to get the liquidity to do this? the samere, it's culprits -- you guys talk about

the bond market liquidity of the time. it is the idea that banks have to hold capital against all of their assets nowadays, not just the ricky -- the riskiest ones. alix: do we ever get to positive double-digit spreads again? that is a really good question. it's so difficult to answer because the should not be happening. and there's really no good reason why it is. we have seen analysts, like the ones that bnp paribas, saying that negative swap rates are the reality and they are here to stay. scarlet: is this good or bad for banks then? tracy: what does this say for banks question mark in theory, it suggests they are more credit worthy than the u.s. government. alix: i have been wanting to talk about this for a week. thank you so much. tracy alloway. scarlet: the fed may be getting back on monetary

policy. how would this affect emerging markets? ♪

scarlet: i'm scarlet fu. "what'd you miss?" let's get to mark crumpton with first word news this afternoon. mark: scarlet, thank you. present obama and is really prime minister benjamin netanyahu have not given up on peace even as a deal between israelis and palestinians appears to be out of reach. they met at the oval office for the first time in a year. hillary clinton made it official today in new hampshire. she filed paperwork as a democratic presidential theidate in the first in nation primary state.

mrs. clinton was the last of the three main democratic candidates to file. russia's foreign minister says the country's ban on flights to egypt will not be lifted quickly. he says it will take time to ensure security following last month's plane crash that killed 224 people. operators could cost $200 million if the ban lasts three months. the national hurricane center says that hurricane kate may have wins that increase over the next heat of days. in effect forg is central and west bahamas. you can get more on these stories any time on the new bloomberg.com. back to you. much, markank you so crumpton. it was the monday after the jobs

report and you can see the reaction. a pretty violent reaction, a tumble in u.s. stocks, the s&p 500 falling the most in want. the u.s. dollar rose the most in one decade. treasuries fell as well, pushing yields higher. it seems like the delayed reaction filtered through all asset classes. one thing that really moved today i want to talk about is apache. the rumors that perhaps someone was going to buy it for the market cap $18 million. you have the ticker and it shows the value for the company is $30 million. who will buy it -- $30 billion. did i say million? who would buy it for $30 billion? joe: i would buy it for $30

million. an analyst at oppenheimer says it does not make sense for these guys. he says they are going to p/e, break up the company, keep assets in one part of the company and break up the rest. that might make the most sense. it's a huge deal in the oil community. scarlet: it would be interesting to see. alix: they literally have billions waiting on the sidelines to deploy. joe: i want to dive in the terminal to talk about something glander was talking about. this goal line is the spread between u.s. 2-year yields and yields.-year you see it has been on the rise in anticipation of a u.s. hike and they fall in germany with anticipation of more easing -- the purple line is the dollar versus the euro.

we usually show the euro versus the dollar, but we flip it around here. this chart goes back over a year and it shows them pretty much in line. as that spread has widened out in german and u.s. yields, we see a pretty consistent rise in the value of the dollar and the euro. scarlet: we are all looking for a relationship to see if they strengthen or fall apart. for my deep dive, goldman sachs itsic -- holding fund.ic you can see the heyday was back in 2011, and since then it has really been dropping off. let's zoom in on 2015. a lot of the damage to the emerging markets happened then. the markets started sinking, the emerging markets, and the trend is clear. it is volatile, but it has been a steady strop -- a steady drop lower. joe: i love that chart.

it looks like it is right when the em peaked. scarlet: it absolutely is. em's overall are awaiting the fed decision in december. source, any one argument to short em's have evaporated. let's see if our next guest agrees. from a fixed income group. do you believe that? do you think the shadow of the rate is too difficult for the emerging markets to shrug off? amer: no, i don't. reason they have underperformed is all about the markets in the emerging and the disappointing phase of activity we really saw in 2011. behind truly the shadow

underperformance. if we start seeing green shoots em starts turning around, then we can easily see them absorb a fed hike. em istory short, i think what we should be looking out and if growth is ok, then we can observe the rate hike. joe: what are green shoots you are seeing? are so faint green, i don't wish to overemphasize -- after a depression throughout the year, we see this above zero the first time. the leading indicator for me is always asia. you look at korea, taiwan. for the first time in months we are seeing the growth rates picking up in these countries, admittedly after a very, very

weak. of the year. but after months of bad news, good news is always welcome. pmi? itat about global seems to be rolling over. amer: that is irrelevant. in asia, -- for the first time the average is above the average of the last three months. way away from the first derivative becoming happy them up at the margin is improving. atrlet: when you look emerging markets, i know your take on it goes, as goes china, there goes sentiment. we do have a modest uptick in december him a maybe the trend is turning. do have a modest

uptick in december, maybe the trend is turning. amer: it is a huge concern, i think. focus on they i reserve as a signal that the capital outflows from china have tapered. we can argue over the details. the reality is, capital after the august devaluation -- that that givest, because the fomc significant room to ease. -- the fear was -- they regainh monetary policya. if theyv cut rates and agreee if they cut rates,

and they get growth, that is a good thing. alix: there are still capital outflows not reflected in that chart that are a decent risk going forward. meant by wes what i can argue about the numbers. the reality is we have be more practical about this. the outflows, that is still a very large number. is half of what it was in september, which is half of what it was in august. the reality is organically defined outflows are quarter of what they used to be at the worst moment. joe: one of the arguments people are making our, sure, there are signs of green shoots and bottoming, but you still have the massive debt buildup. and the way that the u.s. had to

go through extinguishing that debt, that has not happened in em's? amer: you are preaching to the converted here. i always distinguish between the cyclical and the secular. the headwinds are going to be with us for 40 years. this is not something that will in two or around three years. the poster child -- it's not the government. i used to joke. the imf used to be mostly fiscal. now it's mostly private. the only point i'm making, short-term cyclically, things may have been overdone. we may have become too bearish and things may be turning around. that is a good thing. from all right, amer bisat black rock, you are sticking with us.

we will turn to india as well as russia for opportunities. ♪

scarlet: in scarlet fu. "what'd you miss?" it's time for the bloomberg business flash. canadian railways attempting a takeover according to sources familiar with the matter. is valued at about $2.4 billion. says hisl ackman biggest regret is he is not in a position to buy more shares of valeant. he made his remarks defending his firm's stake. valeant is under scrutiny for

business practices. shares have plunged. pimco is firing back at bill gross, trying to convince a california state court to throw out his lawsuit against the firm. that it was more like a screenplay than a filing. gross claims that he was forced out so pimco could avoid paying him his cut of last year's business pool. that is your bloomberg business flash. .e are back with amer bisat before the break we were discussing china, but i wanted turned to russia. if you look at exchange traded funds tracking the bric countries, only russia is

therefore the year. the name of our program is "what'd you miss?" what are people missing? amer: quite a lot. that is acountry commody exporter at a time -- this is a country with significant questions about politics. this is a country facing sanctions. that is something to keep in mind. they areid that, ,llowed of to move so cheaply despite a very large drop in oil there is a very large surplus. that is extremely unusual in commodity countries now. in the meantime, they were able to deleverage and payback -- pay if you look, this is a country in balance.

this is a country that is growing. barely. inflation has peaked. centralans that the bank has been cutting rates. that is very core cyclical. so, it is a very different story than the story we had this time last year, at the time of the ukraine crisis and the sanctions. of course -- ok, they have significant challenges and problems, but cyclically, this is a story that looks very different today than it did a year ago. pricesire did lower oil -- why did lower oil prices and a weaker currency work for russia and no were else? it literally looks like the ruble is tracking oil. how does that work? because the cheapness of the ruble in exchange rate terms is larger than any other commodity exporter out there.

the effect of which has been a very sharp contraction of imports, as well as -- you hear stories about import substitution going on in russia right now. the resources and the non-commodity sector is more advanced than in other countries. --t is what is the heinz what is behind this. you see this even australia, but in russia it is much more advanced. country where there has been a a lot of polls throughout selloff is india, although there is a lot of optimism about the government. where is india today? i am a great believer in focusing on things relative to what is in the market. it became constructive because it was not as bad as people thought in russia.

in india, it is not as good. it does not mean it's not positive. the central bank is unparalleled, as well as the ministry of finance. the problem with india right now that it is't know hitting the wall, but the pace of improvement has decelerated. you see various levers. all of the things that the modi government promised us, they are not delivering. the politics are becoming more complicated. meantime, economically economy is not performing the way we expected. so, it's still a good story, but relative to expectations, is no longer as positive as -- it is no longer as positive as modi had in mind. alix: great stuff, amer bisat. scarlet: now to a correction.

on friday we introduced our guests as the gm of securities and he is no longer with the firm went in a fight. we will have the latest on greece's aid package from brussels, next. ♪

alix: i'm alix steel. "what'd you miss?" ministers met in brussels to discuss greece's bailout program -- i swear it is not five years ago. us, on the phone from brussels, bloomberg's correspondent. jonathan, what are they discussing and what are the snags?

basically, this is a meeting of european finance decisionsat which no were to be made, but was a temperature taking exercise. for theas to qualify package. of its aid the greek government. an initial disbursement,ial but as is the habit of greece's creditors, it was on a very short leash, splitting it up along milestones. the greek government is now trying to win the green light for a 2 billion euro dispersal. the deadline on this question mark how soon do they need to come to an agreement question mark i know there is a big sticking point when it comes to foreclosures on

homes. -- what is the deadline on this? need to come to an agreement? another is a big sticking point when it comes to foreclosures on homes. jonathan: what is holding up that agreement is the extent to which greek legislation should protect primary residences from foreclosure. the greek government last week was asking, or put her word a proposal that would protect aughly 70% -- put forward proposal that would protect roughly 70% of households from foreclosures, and creditors that it had to be much lower than that. over the weekend, the greek to 67%.nt lowered it the creditors are looking for 23% or so. that is where a compromise needs to be found. from the euroews area creditors is they are willing to find common ground.

everyone was saying this could be done within the week. scarlet: common ground in greece. that is something we have not heard in a wow. jonathan, does this have launchtions on greece's to have its debt forgiven? .onathan: indirectly it does -- faster it does, it will the faster it will finish the review, and after that is done, the question of debt relief in terms of longer maturities and that rates, not a haircut. -- debt rates, not a haircut. the disbursement is linked to the recapitalization of greece's aids, and within the package for greece, 10 billion euros have been set aside, have been in marked for greek bank recapitalization -- earmarked for greek and recapitalization.

and european creditors seem to be sensitive to this -- the risk is if greece delays getting a payment of 2 billion euros, that will push off the ability of banks to access the 10 billion euros that is earmarked for them . this would be very on helpful at a time when banks are having to go through the hope of having to raise the money from private investors, who are counting on the banks having access to 10 billion. before the last election, there was a view among leaders in europe that alexis tsipras had gone from being a radical to a leader they could negotiate with. would you say that that is still the view? jonathan: broadly, the creditors of greece are happy with the outcome. they want tsipras to win the election in september 2 take takensibility for -- to

response ability for the package he signed off on in august. but the schedule for meeting aid requirements gets pushed back again, and that respect this is happening again, but not nearly as medic as we have seen in previous occasions in the past five years. -- not nearly as dramatic as we have seen. scarlet: got it. jonathan stearns. thank you so much. we will be right back. ♪

don't miss this. portuguese credit default swaps are spiking on a five-year basis. look at that. the anti-austerity party is teaming up to potentially topple the government tomorrow. joe: another thing you do not want to miss tomorrow -- the

small business optimism is one of my favorite surveys. they have a whole bunch of questions. our sales up, down, whatever. a lot of insight into the economy. al

mark: you ask a lot of questions, but you forgot the most important one. ♪ john: we will see jon meacham here on thursday but now it's the daily carson show. with interviews here, but so far