what will the data say about timing for fed rate hikes? david: bonding exercise. governor carney marseille surging back into treasuries. but could that mark if you fall in bond yields? alix: european banks extend their rally to a third day, no thanks to rbs, who is feeling the pain of brexit. jon: welcome to "bloomberg ." we are wrapping up a big week for markets. david: payrolls are particularly interesting. alix: i am keying in on wages because we have very strong consumer spending. consumer spending has been propping up gdp. if we do not get the wage growth sue support that, what happens to the underlying economy? thing, orthis a wages

is it about the underlying economy, particularly after disappointing numbers last week? alix: we have two former economic advisers joining us ahead of the data. glenn hubbard and economic professor at princeton alan krueger will be here. you do not want to miss that conversation. mohamedl gross and el-erian will help dissect those numbers after they cross. take a look at the market. it is really a global bond rally today. jon: very much so. i am looking forward to that really average lineup we have for the payrolls report. in the market, futures are a little bit firmer. this is the picture now. the deck is up by about a third. it is themarket, dollar story ahead of the payrolls report. the cable rate is positive as well at 1.3151. there commodity market,

is a big two-day gain coming into today, with the bti at 41.58. -- with wti at 41.58. you look at the front end of the yield curve in the united states, we are up about a basis point. that is how we are positioned ahead of the payrolls report. and a big rally on guilt across the curve following the bank decision yesterday. markets at the bond the front end, giving up some of the rally. alix: and the volatility in the bond market and treasuries picking up ahead of the jobs report. julie hyman is joining us from washington to outlay the preview for the jobs report. what are economists expecting? julie: economists are expecting a return to the mean. we have had a wild couple of readings for the month of may, rebounding strongly to a reading

of 287,000 in june. the economists estimate for july is 180,000, more in line of a six-month average of 172 thousand, still below the 1200 -- still below the 12-month 200-4000. as you can see, the average estimate for the unemployment rate is 4.8%. the average hourly earnings that so many will be watching earnestly, .2%, double potentially of what it was in june, so potentially stronger earnings growth. that speaks to one of the questions that a lot of thismists are asking -- is slowinging -- this average job growth reflective of a more maturing market, or is this alternatively a reflection may slowing economy, which

be the case given the gdp numbers we did not see? since you allion were talking about the federal reserve expectations on the part of traders and how they are set up going into this jobs report, the december possibility of a rate increase -- the september possibility of a rate increase is down for moore it was -- from where it was several weeks ago. that is another number that you want to watch in the wake of the jobs report after we get the numbers. i will be in front of the labor 8:30,ment and 8:30 -- at bring you all of the details. important. the most david: that is why we have with us, carl riccadonna. he is the bloomberg intelligence chief economist. carl, let's start with you.

the last couple of months, the numbers were bouncing all around. a low may number, high june number. wild swings, and that muddies the waters in terms of understanding the underlying trend. but if we look at the six months or 12 month rolling average, there is a deceleration happening, which is set to continue given the weakness in gdp that alix was highlighting. it looks like that number will be revised even lower. so the economy growing just 1%, job gains will suffer over the next couple of months. jon: we show the six-month moving average. 172,000. you would expect the closer you get to full employment, the moving average would move down. that is not necessarily equate with weakness, does it? carl: the debate among economists is that this is a wage economy and the demand for labor means the pace of hiring

is slowing. or if this is really just a response to the economic weakness not just in q2, but over the last several quarters. the economy basically grow -- basically grew 1% over the last three quarters, and that is a dangerously slow pace of expansion. david: let me ask you the chicken-and-egg question? >> i would take a little bit more of a glass half full view of all of this. the reason the economy has been so weak in recent quarters is that we had blowout inventory growth at many companies in the past year, and inventories are being pared back. now they are being reduced to medically. companies can go back to more normal production and no longer be comparing inventories. we will see better growth in the second half. numbers over 200,000 are not sustainable in payrolls, but 150,000 is sustainable over the next six to 12 months.

that is a very good account come -- that is a very good outcome. the labor market is actually one of the real signs of strength in the u.s. you pointed out this dynamic, looking at the gdp , and there is a gap that started a few years ago that is now extraordinarily wide. the question is, why? is that gap sustainable? carl: that wide gap is the silver lining of extremely weak put activity numbers we have seen over the last several years. even though the economy is growing at a 1% to 2% pace, job creation looks like it is growing at a 3% or 4% pace. in the near term, the more pressing issue is reducing labor market slack. i will take the low productivity as long as we get decent job gains.

david: is that chart that we just put up the half-full part of a glass? ethan: we need productivity gains to generate healthy income over the long run, but in the short run the good news is that we are reaching full employment. we are at the beginnings of a wage acceleration. for the average worker, it still feels pretty bad, but over the next few years we can finally get to a normal labor market with normal wage growth. that is the good news. the bad news is that we need to get productivity to sustain growth in the long run. david: we want to thank carl riccadonna, who will be back with us later. ethan harris, bank of america/merrill lynch, head of global economics, is staying with us. alix: we are going to start over in europe. take a look at rbs.

they had a larger than estimated loss in the second quarter. they had to set aside more money to cover lawsuits, but more importantly, it may not reach its 2019 goal and was planning -- and is planning to abandon to set up williams england consumer bank as a stand-alone business. rbs is trying to become a consumer bank, and those plans have been pushed off, even though they spent a lot of money on the project. a really interesting story happening with priceline in the u.s. it's profit the estimates. they said perhaps the terrorism issues did not have an impact on their business, very different from what we have heard from other online travel websites. revenue increased 12%. travel bookings, the amount of money that people spend on priceline, increased 19%. it faced competition, which makes it more impressive that it

was able to beat, the stock up 5%, 6% premarket. microsoft -- this is a 10-year chart. microsoft is at a 16-year high. that happened yesterday. one stock to watch, almost up 140% over the last 10 years as it continues to transform its business. is $26xt transformation million to buy linkedin. here is first word news. >> hillary clinton has extended her first -- has extended her lead over donald trump it a new "the wallnbc news and street journal" shows mrs. clinton with a nine-point lead, 47% to 38%. the same poll in july showed her leading by five points. the survey was conducted from july 31 to august 3 with a margin of error of 3.5%.

of angelabers merkel's party are defending her refugee policy as the german chancellor's approval rating takes a dramatic fall. voter support for angela merkel slumped 12 percentage points to 47% in july, the second lowest rating of her third term, which began in 2013. driving the dissatisfaction, a series of terror attacks that has unsettled the public and sparked political opposition. the number of people being hired for permanent positions in the u.k. slumped to the most in seven years in july, according to a report by the market improvement and employment federation. that signals a dramatic freefall. the present decision will hold -- economic growth global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus i am sheryworld,

ahn. this is bloomberg. jon: investors turn to today's payroll number. will it be strong enough to ease the rush into treasury? that is next on this payrolls friday. from new york city, this is bloomberg.

alix: it is jobs day in america, and you are looking at a live shot of washington, d.c. we are an hour and 15 minutes away from the jobs report. this is "bloomberg ." i am alix steel. i wanted to highlight is the diversions between u.s.

gdp and the 10-year yield. we take a look at the long-term chart between the two. the gdp has continued to hold up relatively well versus the 10-year yield. the diversion started to happen around 2010, 2011. but this is extraordinarily wide. growth -- 1.2% gdp growth is worth a, but is it worth the yield? ethan: these are creating a tremendous gravitational pull on the u.s. bond market. my view would be, if it was not for what is going on in japan and europe, you'll be 2.5% instead of 1.5%. it is driving investors into the u.s. bond market. it is not a sign that the u.s. economy is collapsing, it is a sign of the state of things in europe and japan. back you upgraded your

half of the year forecast to reflect the weaker inventory number from the second quarter. talk us through your logic. it is still not enough to get us to that 2%. look at theu revision that michelle meyer made with our gdp forecast, it was acknowledging that we have low inventory growth, there has to be some kind of a rebound. the way to judge the economy is to look at the full year -- 2.5% in the first half, second half, a little over 1% in the first half. this is the new normal for the u.s. we are slightly below a 2% economy. jon: a lot of people want to turn to the next chapter overtime. it is just ok. things are just ok. does that mean we are not going to get inflation pressures many people do anticipate, and that goes back to the bond market the way yields should or should not be? are the inflation pressures there?

ethan: inflation is a long lagging indicator. we only can inflation once you reach full employment and start to get resource pressers. -- resource pressures. we have hit that point now. we have seen wages accelerate by half a percent. in thel probably see it numbers this morning with the average hourly earnings up 2.6%. remember, in europe they are running 2.2%. we have the seeds of inflation running even without super robust growth. that creeping higher inflation will continue unless the economy reverses. once inflation gets going, it tends to keep moving. we are not talking about runaway inflation, but certainly the bond market is not priced for what we will get in terms of u.s. inflation. your: how sensitive is percentage of gdp growth compared to consumer spending? what happens if consumer

spending trails off? ethan: the consumer is the motor of the economy right now. fundamental in sustained -- fundamental and sustainable. it is a reflection of low gas prices, of cheap imports. cheap imports are bad for u.s. companies that compete with those imports. they are great for u.s. consumers. people labor market that are benefiting from a better labor market. but as we go forward, we cannot get 4% consumption every quarter like we got in the second quarter. we need some other things to kick in. we need the improvement in inventories, a little bit of capital spending. but i do think consumers can remain there as a driver of growth. alix: going back to jobs, is there a job number that will cause a backup in yields in the u.s.? ethan: i do not think this is going to be that big a deal for the bond market. you need a big surprise to change the markets.

the bond market is fixated by the central bank actions we are seeing overseas. this latest bank of england move, the boj with its foot planted as hard as it can on the accelerator -- i could see some movement if we get a 200 jobs number, but i do not think this is a game changer for the bond it hasjust because become increasingly a global story and less about the u.s. david: thanks for a much for being here. ethan harris is the bank of america/merrill lynch head of global economics. carneyith governor ruling out negative rates, could financials be poised for a much-needed rebound? that is up next. this is bloomberg. ♪

jon: this is bloomberg. i am jonathan ferro.

the royal bank of scotland posted a larger loss than estimated in the second quarter. when you break down the loss, the fact that the core business made another billion pounds of pretax operating profits -- but as is typical with us, we are in the middle of an intensive restructuring period. we again saw some pretty substantive provisions taken today. jon: joining us now is jonathan tice. beginning with rbs, just when you think they might move on, they deliver a wider than estimated loss per what is the story for the month and the year ahead? jonathan: unfortunately it is pre-much never-ending. some --uct merits

always get a huge? mark aboutuestion what that is going to be. we will waiting for rbs. the story was capital returns. they would be allowed to return capital now. that is being deferred. the underlying fundamentals of -- just banking markets as they were beginning to show a glimmer of hope, the competition --getting harder and the unfortunately, it is more of the same and it is difficult to see when it ends. david: you mentioned the overhang both in the united states over the u.k.. why can't they get that behind us? u.s. banks have had that risk for even deutsche bank, which has had a lot of problems. is this a failure of management, or is something else going on?

jonathan: the biggest numbers will probably be the rmbs figure. it is as if they are toward the back of the queue. we always knew that was going to take a while. -- the pra over here, the goinging body, are to sponsor a campaign toward a hard deadline on that. you still have the action from shareholders. it is not really management's fall. -- the rmbs number, we still do not know what that is going to be. jon: let's talk about the people who actually own the bank -- it is the government, the overwhelmingly majority shareholder of this bank. should we just fess up and say they are not going to be able to get this away for the price they paid for it if they want to get it away anytime soon? what does that mean for the rbs?e of th

how quickly the banks will pass this back to the consumer -- we looked at that. they were a little bit reticent to say. the one thing it means is that the longer the bank of england has to have measures in place, they are going to be very displeased if the royal bank does not parse these on the new scheme of hundreds of billions of lending. it will be hard to take. margins going down is one thing. they would have to prepare for a huge loss. we are a long way in many years out from that. wraps up two weeks of european bank earnings. is your take away from all the numbers we have seen? , do not: the buybacks

forget we have a stress test. the message from the stress test, regulators are more comfortable with capital. the banks have been saying, those who are growing or reporting better-than-expected profits, they may be stepping away from progressive dividends. there are certainly the haves and the have-nots. there are some who unfortunately seem to be in a never-ending cycle of one offs that are clearly no longer one offs. jon: thank you very much. alix: coming up, we are going to go below the top line u.s. jobs numbers and see how and why there is disparity among minorities. this is bloomberg. ♪

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maker of insulin cutting its profit margin by 1%, to 8%. insulin prices are falling, and that is weighing on the company stock. we have more brexit fallout here. you have the temp agencies -- the u.k.encies like -- employment confederation says the job market is in freefall. in fact, the post brexit permanent jobs placement right now is the lowest since 2009. heinzng it appear with kraft, second quarter estimates topping earnings, raising its dividends by 4%. also upgrading this morning as well. they do have budget cuts. that is the good part, and that is helping the country. coffee is following in the developed world. what? here at bloomberg we consume so much coffee. wrapping up a massive week.

i am edges so much coffee got consumed on trading floors this week. payrolls friday as well. if you are looking for peace and tranquility, maybe we have to wrap up this weekend get straight to next week. you will not get much of a tranquil day as far as this friday is concerned. with payrolls on the agenda, equities firmer in the last 10 minutes in europe, the dax up .2%. -- potentially losses after three weeks of gains in europe. global markets oscillating around, unchanged ahead of the payrolls report. 43.94 on brent, and bonds -- what a week it has been. ahead of the payrolls report, the front end of the yield curve, treasuries other one to watch. we trade about 65 basis points on the two-year note yield.

ultrasensitive to fed expectations. world outsidehe of business with shery ahn. shery: new revelations about the missing malaysia airlines flight 370. malaysia is acknowledging for the first time that one of the plane's pilots had plotted a course on his home flight indicator that on his home flight simulator to the indian ocean. that is where the plane is believed to have gone down. there is no evidence, according to officials, that the plane was deliberately crash. in south africa mother chief whip of the ruling congress says -- with 98% of the vote counted, the opposition democratic 47% of thes nearly vote to about 41% for the anc.

it looks likely the obama administration will hit its goal of admitting 10,000 syrian refugees into the u.s. before the end of september. state department figures show that more than 2300 arrived last month. more than the previous seven months combined. total admissions for the current edge it year are 7900. -- for the current budget year are 7900. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am shery ahn. this is bloomberg. i want to take you to today's morning must read after the bank of england pulse rate decision yesterday. the telegraph has published an op-ed. take a look at this. i

jon: there is a range of views on this subject. i will let you decide on the spectrum where this particular view goes. it points to the idea that before the buffer end of -- before the referendum, the bank did not giveself us an idea of what the monetary response would be. rates could go up or lower. you saw the sledgehammer response from the bank of england yesterday, and still we have the same accusations being fired of the bank of england, that they were operating under the same operation of fear. i do not think it will become politicized anytime soon. david: in fairness, they have taken the forecast down substantially. the one thing that seems undeniable is that there is uncertainty in the marketplace are you see it in ppi numbers and all sorts of numbers. you cannot and i there is

uncertainty around breaks it. alix: but there is a difference between a prices that is both long -- between a crisis that is prolonged and all over the world. there is no liver that has been pulled for a crisis, and that is indicative of what "the telegraph" is saying. a former pizza it -- you do not know with the effect is right now at we had one month of soft data survey data. there was not a government at the start of the month per no one knew where this was going to go. there is more certainty now, and you wonder whether it steps back. to his point, consumer confidence was damaged by the referendum itself. just having the referendum itself and having a huge amount of uncertainty of what would happen, the unknown. we are just climbing out of that, and still we have two or three years of this to go. implicitly, if mark

carney came out and said everything is fine, then it would have been fine. that does not sound right to me, given the uncertainty. consumers and businesses make inheriteds, that is -- that is inherent. alix: in terms of international economy issues, inequality, etc., that was going to be there no matter whether you had a referendum or not. david: but to jonathan's point, having the referendum brought focus on those things that there was not before. jon: project fear is coming in for a lot of criticism. it is damaging for confidence. as a business, do you take such a juvenile approach to your investment, that if the governor says we could face a technical recession, does that change or strategy? that is a different question altogether and certainly a different debate that this

particular article does not address. this one is about consumer confidence and not business confidence. business confidence in most pmi surveys has been literally hammered. david: there has been a dramatic change in ppi or that is what mark hardy has to go on right now. now we come back -- that mark carney has to go on right now. now we come back to the united states. joblessness among minority groups is persistently higher than for white non-hispanic americans. a recent testimony before congress, janet yellen called attention to a widening gap in the united states. for more on this, the chairman of the latino donor. welcome to the program. good to have you here. why is this? we could have a chart that shows the relative unemployment among

whites, hispanics, and african americans. the top line is african-americans, the highest level of unemployment. is hispanics. is whites.line why is that? >> we had differences in terms of geographies in terms of where jobs were versus where they were moving too. we have had a lot of structural issues there. some of it is just the fact that people view who they want to hire differently over time. sometimes you are perceived as more educated, smarter, more educated than other people. we have seen that in bank loans and all kinds of data where i could have the same education level, the same income level, all the same things that are tested for credit, and you still have a lower approval score than others.

that performance happens. but i guess the one thing that i would just say is that it is changing. you look at the chart and you see that the lines are starting to get closer. the disparity is not as great. so in the case of -- part of the reason why i get excited about our future, and back to your last conversation about greg's it and peasant -- about brexit , glass half-full versus half empty, is that we are seeing structural change in the u.s. to talk to -- i like about our new mainstream economy. the new mainstream economy today is looking a lot different than in the past. pointsou want some data -- david: can i just get one data point? how much people make. ethnicity orce and

if the latino it, situation switches with the african american, showing relative income levels with caucasians at the top -- actually, african-americans are above latinos in average wages. why is that? look at theyou data, the percentage of population a decade or two, you saw a big influx of immigrants from latin american countries, predominantly mexico. when they came here, they were economic refugees basically. their education levels were very low. they did not have college degrees, that sort of thing. what is happening now, it is changing. their children are getting educated. the dropout rate for latinos in the united states is now at about 12.6%. it used to be 50%. people used to talk about that. the number of latino youth going into college today essentially

is the same rate as non-latinos, whitepical white male, female student, those are going to college at the same rate as latinos. so all of that is unfolding as part of this new mainstream economy. alix: the structural change between the gap in white and rate iste unemployment falling. solomon: it is different between african-americans and latinos. i think the data, the underlying data would show that there is something happening, and particularly with latinos. that is educational. the generational change from the prior generation that was undereducated, to a current generation that is equally educated, and a future generation that looks like it , than allre educated

others. not about minorities. the second thing that is really important is entrepreneurship and when we talk about jobs, about the restructuring of the economy, i come out of the technology world. when we think about a sharing economy, a digital economy, about a lot of those things, the metrics we have traditionally used have to change, just like they do in a business. so how we count things is different. a couple of data points. if we have the time. one is that stanford, the hoover institute did a study released last november, and it showed entrepreneurship in the u.s., when you look at business formations over the last decade, 86% were created by latino entrepreneurs. 86%. if you look at white male, white female, it was -5%. so we are seeing that transition. $1.5 trillion back to consumer spending

associated with latino, growing at $80 billion to $90 billion per year. david: fascinating. trujillo. jon: coming up, we take it to the fx market. could mark carney's dovish outlook leave the pound at risk of further decline? plus, how will today's jobs report impact the u.s. dollar, which has been left in limbo? this is bloomberg. ♪

shery ah: the royal bank of scotland posted a larger than expected loss. in an interview with manus cfo discussed the changing conditions facing u.k. lenders. >> i think we are heading into an environment that is structurally lower in terms of profitability for the large u.k. banks and going to make it subscale challenge of banks. it has a five-year plan to transform itself.

street's top regulator is calling out bank of america for not adequately explaining executive pay. the sec chided the lender earlier this year for not describing the compensation decision. that is according to correspondence between the agency and bank of america yesterday. thomas montag earned significantly more than other top managers. that is the bloomberg business flash. i'm shery ahn. this is bloomberg. jon: now to today's morning meeting, where we hear what key banks are looking at. our next guest has his eye on centrals after the bank's decision. central banks give and then they turn around and they say can we have some more. and if they do not like what is

coming, they react in a very different way. is that why we are seeing a resilient pound so far for much of the week? >> i think the market has definitely been a little bit frustrated. response outolicy of the central banking community, especially out of japan, and that is why we have seen the yen rally. the fear going into the bank of england is that we would have the same, or the bank of england might come in softer than expected and therefore the pound would squeeze higher. so we have a short recovery going into the meeting. the bank of england delivered as much or more than expected, and we had a weaker pound, which is what you would expect, and unusual effect -- an unusual event for the last 12 months. currency reacted as you would expect it to. we sort of stalled around 1.31 and are grinding higher today. not a drastic move, but that is a move in the right direction. jon: we are used to talk about

in the broad market. if you went to sleep at the beginning of july and woke up now and had a big long vacation and said guess where the euro is 1.10,u could throw out 1.11 and you would be right. what do you make of these tight ranges we are trading it from the major currency pairs? brad: some of it is definitely the summertime markets. i think that is a large piece of it. people are a little frustrated in terms of macro investors. they have been forced to trade event risks as opposed to trading longer-term trends, and that makes it difficult to put opposition and hold those positions for a long time. getting people in and out of markets for a long time, looking for short-term moves, that keeps currencies in check. in the case of the euro, you have a lot of flows that go on in the marketplace, a lot of crosswinds there in terms of

trade surplus and account surplus and things like that. that keeps the euro in check. not to mention the reserve currency. reserve managers are parking funds there as well. is definitely a sleepy summertime market. some of it is crosswinds. in the case of the pound, now that the boa as acted, we will see the longer-term flows come back into the market. probably selling the pound, likely to take us down through 1.30, maybe the 1.28 level we saw it recently. i expect further weakness there, but i imagine the euro, although it might get tons lower at the margin -- it might get tugged lower at the margin, you could wake up a couple of months from now and see things basically where we are now in terms of euro-dollar. alix: the story is a weaker dollar across the board. what is the currency pair you

will be trading at 8:30? brad: definitely dollar-yen. that will have the biggest reaction given the correlation with interest rates with the u.s. and u.s. equities and the dollar. that is going to be the most active today. to the extent that we get a higher than expected number, that will be dollar bullish. you might see the pound pickup at 1.21 levels, so maybe some fireworks in the pound. it will probably be centered more around dollar-yen. jon: great to have you with us on the program. up, three charts showing the recovery in u.s. wage growth. this is bloomberg. ♪

alix: this is "bloomberg ."

consumer spending has propped up gdp. line isrt, the white atlanta wage tracker versus the blue line, average hourly earnings. the two have really diverged are the atlanta number coming in at 3.6%. the deal is that the average hourly is an average. so the low moving wage growth actually weighs on the number versus atlanta, which is immediate. and may the more accurate. this is according to steve england are at citi. what could bews positive in the average hourly earnings jobs report. this is the percentage of workers receiving zero wage increases, dropping quite a bit. this is at the lowest level since 2009. steven englander says this helps prop up the average hourly

earnings. the last part of the story is the low income worker. this is the 25th percentile of wages, and they are falling less rapidly than we have seen in the past. actually right now we are at levels we have not seen since about 2006. the idea is the lower income wage worker bottoming out here. those who had zero wage increases are really moving lower. did we see the average number move up to that median number? ivid: it is fascinating, and have to study this more. it looks like a lot of people with really low wages are growing. that is bringing this average number up here. alix: it is the low income workers wages that stopped falling and stabilized -- that will probably average hourly earnings. that is why we see the atlanta wage tracker outperforming. david: you wonder where the job growth is coming in with low

income workers. jon: we will continue the debate on this program and preview u.s. payrolls with two economic advisers. alan krueger and glenn hubbard. plus immediate reaction with bill gross and mohamed el-erian. this is the state of play currently. futures in the united states stable and positive, up 21 point s. yields on treasuries lower by a basis point, 1.9% -- 1.49% is your yield. dollarger euro, a softer . from new york on this payrolls friday, this is bloomberg. ♪

david: help wanted. economists are looking for payrolls growth to return in july. jon: bank of england governor carney starts a surge back into the economy. extenduropean banks their rally to a third day. rbs is feeling the pain of brexit. david: welcome to the second hour of "bloomberg ." we are all waiting for the jobs numbers. can tell from my last report that i am very into what we will see from the average hourly earnings. will they eventually be able to rise and supports the consumer spending we see in gdp yeah go jon: -- the consumer spending we see in gdp? until we do not get that august 26. we had this today, jonathan.

alix: we are counting down for 30 minutes and then for three weeks. we have a reaction to today's jobs report. two economic advisers -- two former white house economics advisers will be here. alan krueger and glenn hubbard. and mohamed el-erian and bill gross will dissect those numbers as they cross. it is a global bond market rally. guests just for that focus. the market in positive territory. the ftse marginally positive on the day. fx, the dollar to watch. by 2%.e down by .10 -- branch down .8. copper down as well. in the bonds market, the curve flattening. yields anchor on the front,

coming down on the long end. 38 yields on treasury, coming in two basis points. delicate dance on the one side between ok u.s. data and global monetary easing driving this bond rally. david: now we want to turn to carl riccadonna, the bloomberg intelligence chief u.s. economist. what would be a really big game to the upside, and a big miss to the downside? carl: my expectation is roughly 170,000, in line with the moving average. 125, thatas low as would be problematic for the outlook and would signal that employers are responding to the sluggish economic growth we have seen over the last several quarters. conversely, i do not think a strong number really changes the picture with respect to the

september fed hike or anything like that, but a really strong number would have to be payroll gains north of 230,000. it would have to be accompanied by evidence of mounting waging pressures because as alix highlighted, it is critical to see household income creation propelling consumer spending in the back half of the year. david: we just had a number up that showed last month which growth was up 2.6% year over year. what would be expected today, and what would be a good upside? carl: the consensus is looking for another 2.6% year on year reading here it anything up -- year on year reading. one reason we met are seeing a hiring slowdown is because of

simple supply and demand economics rather than a response to economic sluggishness. david: that is carl riccadonna, bloomberg intelligence's chief economist. jon: we have two very good guests. glenn hubbard.d both have served as white house chief economist. how frustrating is it that the labor market economist -- as a labor market economist, that every friday we had this juvenile discussion over how big the number needs to be? does that frustrate you? alan: very much so. it is an important indicator, but i think it gets greatly amplified and too much attention is paid to it. david: the fed has to make a decision based on something, and it seems this has become an important determinant for the

fed. important,ink it is but there are many other factors that guide monetary policy. whether this month's payroll that is not change that view. alix: the real question is, when are we at full employment? is a possible that full employment is much lower than economists expect right now? i have to say, i used to serve glenn coq au vin. let's dig a little deeper. your question -- full employment, basically we are close to full employment the way the fed defines it. what worries the fed is the decline in labor force participation. i am skeptical monetary policy can do a lot there. fiscal policy could. i think we are close to what the

fed would call for employment. agree with that. we are starting to see wages grow more strongly. i agree with glenn. i think we are getting close to full employment. if we are that close, why ?re we printing 287 k per month glenn: if you look at the long-running average, this has been not so great of an employment recovery. we are basically close to full employment, as the fed would measure it. there are a lot of people who left the labor force. we would all like them to be back. the question is how. if you get to full employment at some point, there has to be pressure on wages. at what point does the fed get concerned about that? isn: i do not think it pushing the panic button at the moment.

it has been below its inflation target for four or five years. my own view is that it would be that for other side of some period of time. we are seeing inflation moved toward the 2% target. the consumer price index is already above it. moving in a way we would expect, given the recession. of the decline is because of the demographic, because of the aging population and fewer women joining the workforce. jon: the labor market has evolved as expected when the fed hiked interest rates on the back half of last year, exactly as expected. so why are we still playing the rate hike gain with the federal reserve? i think that is because the fed is not just looking at unemployment reports. the fed is concerned about labor

force participation and general economic conditions. the problem is, by failing to have normalized earlier, the fed is vulnerable if there were economic weakness going forward. they ought to be less focused on the current month and just where are we in the economy? are we playing out as expected? alix: which raises the question, what is the level of employment consistent with people entering the workforce? it is lower than what we have been seeing, probably a little bit below 100,000. but the fed is also worried about what is going on in the rest of the world. they are concerned about threats to the worldwide recovery, the effects of brexit. weakness in the eurozone, slower growth in asia or it i think that that has given them some concern, more so than improvement in the labor market,

which has gone the way most economists would expect. with a fedproblem being the only answer to that is that there are a lot of distortions with interest rates this low at this time. better fiscal policy could address some of those concerns. that is what we need. david: i wonder if we are fighting the last war, in terms developmentscal changing the nature of employment. which means you could have a lot more people employed but at lower wages. what does that say about where the fed is taking a? glenn: i do not think that is really a story for the fed. it is a story of what we need to do in the economy with training and access to jobs. we are asking a lot of the fed because it seems to be the only institution acting, but there is not anything it can do. alan: i completely agree with that. congress has had proposals to improve access to higher education, to have better

preschool access, raise the minimum wage, and it has not acted on anything -- any of those as it hasn't has few years. jon: that makes me nervous. alan and glenn are agreeing too much. david: alan krueger and glenn hubbard are staying with us. jon: coming up on the program, the answer to the question on their minds -- is the economic cycle something maturing? we look at demographics of fiscal policy and we are counting down to the payrolls report 20 minutes away. this is bloomberg. ♪

alix: we do have moved the market. royal bank of scotland had a larger than estimated loss in the second quarter. had to set aside more money to cover a loss. more importantly, the bank may not reach its 2019 goals and is abandoning a plan to set up its consumer bank as a stand-alone business even though they pumped a lot of money into it. they are trying to turn into a domestic bank. in the u.s., "wall street journal" had a report yesterday is near a sale potentially worth $4 billion. the cloud computing company hired them to buys -- advise two years ago. hugo boss, a different story. above 6%. sales beat estimates per day were only down 1%.

they saw better margins for they were able to reduce discounting. these are things we don't hear much associated with retailers right now. interesting names coming out this morning. jon thanks. stocks to watch good payrolls report comes in 16 minutes. still with us, the dean of the economic school and alan krueger. both former chairman of the council of economic advisors. the chart for me that captures a , a softer gdp, and a payrolls figure that keeps holding up. it is a spread that has developed. gdp at the bottom. payrolls growth at the top. alan krueger, how does that reconcile? >> mechanically, it reconciled by productivity growth. growth has been alarmingly low the past few years. it is a mystery why it has slowed so much. i think some has to do with weaker business investment. some of that will recover the further we get away from the great recession and harm that caused. the other part of it is i think

we need to be more innovative and dynamic as a society. david: that sounds good. we have not seen that productivity growth. if we don't get it, do those lines come together a different way, that employment comes down? >> i think if we don't get the productivity growth, the recipe is recovery of business investment where the trajectory has been very poor relative to the computer side and more innovation. that has been on the wane in the u.s. for years. we don't really have a policy agenda focused on innovation. earlier, he said he was to see infrastructure spending, he was to eliminate the employer portion of social security and he wants the government to give $10,000 to all households a year for the next decade. could we see something so radical happen?

>> one question is how much that would cost. all of those things were budget costs so it is not an experiment one can run. a good,d imagine long-term infrastructure strategy for the country that involved state and local governments and the private sector. i think it is not about shovel ready projects. it is about a long-term commitment to spend. we need tax reform of the payroll tax. we cannot cancel out a bunch of taxes and hope to balance the budget someday. i think we need to think long-term. but i am not sure that is the right answer. david: i want to pick up on something glenn talked about, business investment versus consumer spending. that is a growing divergence as well. if the answer's productivity and business investment, what is keeping his this is from investing? >> you can see it here. they have diverged substantially with the higher number being consumer spending and the

drop-off is business investment. >> i think businesses did not for cnf consumer demand so it was not -- did not foresee consumer demand. we also overbuilt during boom years and it has taken a while to work that off, longer than it has taken to work off the excess number of houses rebuilt. those are the main reasons. some of that will come back the more we heal from the great recession. jon: the business spending interests me. we talked about balancing the budget. why do we need to worry about balancing the budget? >> i was talking about balancing the budget over the long-term. we have to worry about that. the question is how. i don't think we have to be accessed with balancing the budget today. i do think to announce a series of programs with unknown, large costs with no potential remedy down the road does not strike me as a very interesting idea. disagree on a minimum wage. the idea is it is this is have

to pay more for minimum wage, it might hurt spending but could help consumer spending. where do you stand on the ability of minimum wage to help hourly average earnings? >> historically when the minimum wage goes up, hourly earnings rise. we have not seen adverse effects on employment critic's have claimed. $15 certain level, i worry gets be on the point of what we have seen historically and does start to have counterproductive effects. a minimum wage of $10 an hour equivalent to germany and the u.k. would bring more benefits than harm to the economy. and restore a better sense of balance and fairness in the economy and support consumers. one of the reasons why we have not had as much growth in consumption in this recovery is because the tremendous rising inequality means the top has more money but they have a higher savings rate and lower marginal propensity to consume. a higher minimum wage would help correct some of that.

>> i think reasonable people can disagree on the effects of the minimum wage on unemployment. we are reasonable people. we probably disagree. disagree one cannot the way to help people with a wage subsidy is conditional on your working. we will subsidize. we will help make work pay. that has to be a better answer. if we want to do something, why isn't the cost socialized to taxpayers as opposed to customers and suppliers of particular firms? >> i think they work together. the art income tax credit puts lower pressure on wages. employers don't have to pay as high a salary. we have seen there are unintended consequences of the earned income tax credit. they work in tandem. on the margin, i think we would benefit from raising both. >> i think we are back to reasonable people disagreeing.

david: if you raise the minimum wage, it is sort of a tax on people who employ people as opposed to an earned income tax credit on everybody the country. why is it the right way to do it? to say if you are employing somebody, we are going to taxi by increasing wages as opposed to saying everybody pays income tax and then we will subsidize? >> the labor market is not as competitive as he implies -- is that implies. there's much more employer power over workers. the minimum wage now is at a historically low level. we are talking about returning more of the same kind of fairness we had before, a better balance between workers and management. also, employers have trouble filling vacancies. many are reluctant to raise wages because it will cost them more profit so they make do with vacancies. when the minimum wage goes up, turnover goes down and they are able to recruit more workers. it probably does her profitability. but they are at a record level

of profitability in part because the minimum wage is so low. david: alan krueger and glenn hubbard, they are going to be staying with us. alix: what will the november election mean for the u.s. economy? we will discuss the nominees' alternative policies and debate which would better address the needs of the american people. we are nine minutes until the jobs report. this is bloomberg. ♪

jon: from new york, this is bloomberg. let's get you up to speed on the markets ahead of the payrolls report coming in six minutes and 30 seconds. futures positive. overutures up 41.3 s&p up three. positive in europe as well. let's get to the other asset classes quickly.

this is the situation in the fx market. euro-dollar range bound for the whole of july through august. dollar-yen, 100-handle earlier today. yields unchanged on the u.s. 10 year ahead of the payroll report. the yield 1.5%. david: still with us are glenn hubbard and alan krueger. chaired the. one under president obama and the other under president george w. bush. there has been too much agreement. let's see if we can get disagreement and talk about politics. let's talk about the candidates, what we know of their plans for the economy and what real effects it would have. let's start with taxes. mr. trump has said he wants to andtaxes a lot disproportionately perhaps on the upper income people. what would that do for the

economy and how would we pay for it? >> any tax reform plan needs to dress growth, work, and opportunity. there are elements of what he suggests that would do that. a $10 trillion tax cut is too expensive. there is no way one could argue the economic growth effects offset its large cost. if you look at elements of lowering the corporate tax rate to make america the right place to invest, reforming the individual tax side and bringing down marginal rates, those ideas make sense to me if you are serious about growth and opportunity. the devil is in the details. you cannot propose a clinic costs controlling dollars. david: it makes sense? >> i think what mr. trump has said about taxes has been irresponsible. given where we are looking at our long-run budget situation, a $10 trillion tax cut and paid for going disproportionally to the well-off will exacerbate inequality and make our budget situation worse. it is incumbent on the candidate to be specific.

he said he will revise it. youwho knows what the plan will be? that creates uncertainty for the economy. david: hillary clinton been more specific on raising taxes on the upper income. is that going to raise that much money? is that more social engineering? >> not social engineering. it will help pay for her priorities such as making day care affordable for parents and having preschool widely available which has a high return. what she is talking about on the toer end is returning more the tax rates we had earlier in our history. but only part way. plus, also adding a little tax --middle-class tax cut would be part of it. david: day care is investing in human capital. does it make sense to pay for it by taxing the risk? >> we do need more human capital

investment in the country. i would not limited to daycare. there are variety of training and education program the government supports. i don't think the right way to pay for that is a tax on other income people which is largely -- upper income people which is largely falling on business owners. we need a tax rate that runs the base and makes choices and government spending. david: let's talk about trade. both have been outspoken about trade. mr. trump has gone further about tpb and talked about a 45% tariff on china. a substantial tariff on mexico. what do you think the economic effects of those would be? >> i don't know if he is talking about a negotiating tactic or what he would propose to do. but terrorists of that size are crazy for the u.s. economy. i support the trans-pacific partnership. i think almost any economist with. where i think mr. trump has raised important questions are

whether trade agreements are working for all americans. economists would say it works on average but it does not work for everybody. work supports and things like that, we need that in tandem with these trade agreements if they are to get the support they deserve. david: this is an important point. democrats have said nice things about helping people. as a practical matter, we have not delivered for the people that have been hurt by trade. >> i think we could do much more. the idea we are going to threaten to rip up trade agreements with a 45% tax is harmful for the economy. i think that is part of the reason investment has been slowing. nick said this would cause recession. he is probably right. -- mitt romney said this would cause recession. he's probably right. alix: [indiscernible] >> thing as the election becomes clearer, after the election

assuming we have more responsible policy from mr. iump which is a big leap, think what secretary clinton has been proposing is mainstream and would support the economic expansion. >> i don't think mainstream would include going after corporations and high income people while saying you are trying to promote business investment. surcharge above $5 million? i call that responsible tax policy. jon: it is responsible to wrap this up and start counting down to the payrolls report and 45 seconds. futures positive in the united states. s&p 500 futures around three. the rally in europe picking up after coming off in the last hour or so. this is the state of play in the other fx and asset classes. story today.ar yields unchanged on the 10-year at 1.5%. 20 seconds away. nonfarm payrolls report.

180,000 for july. the previous month, 287,000. average hourly earnings year on year 2.6% is your median estimate. we can cross over to julie hyman in washington for your july payrolls report. 00 edition of payrolls in july. 217,000 in private sector jobs. the unemployment rate at 4.9%, .2% higher than estimated. average hourly earnings growing more than estimated. 0.2%versus the estimate of for a year-over-year gain of 2.6%. the average work week, 34.5 hours. also slightly higher than estimated. we have revisions for may and june. 18,000ncrease in jobs of as may was revised to 24,000 and

june was revised to 292,000. where were these gains in july? continued gains in professional and business services. that includes things like computer services as well as architectural services. health care, leisure and hospitality, and education, and health services. the government admission of jobs in july, 38,000. many were teachers. this means -- we talked earlier about the averages. the six-month average job at edition -- admission -- a ddition. the labor force participation rate at 62.8%. picking up .1%. this headline number, 255,000. last month, a much better than anticipated figure. onnomists have a lot to chew as does the fed in the wake of this jobs report. alix: julie, thank you very much.

i should point out we are seeing a market reaction across the board. the dollar index moving higher. $12.also selling off about kruegerbbard and alan still with us. is this a repricing of fed expectations we are seeing? >> i think that is true. i would not be focused on month to month. but i think the market is. >> this is also an indication the u.s. economy continues to be solid. expansion is solid. that should affect the markets as well. alix: the revision for june as well, it seemed a lot of economists were looking for goldilocks. it seems we have blown over here even from the june numbers. jon: the story is still the participation rate is picking up. that is why you have seen the unemployment rate pick up as well. that is not necessarily the economy reaching full employment. i know alan krueger will want to

say something about this. he will get the opportunity to talk about it in just a moment. the expectation is it would drop to 4.8%. it held steady at 4.9%. we can cross over to tom keene speaking with bill gross on today's job report. on bloombergus television and bloomberg radio is william gross of janus capital. i have facebook live going to make it more attractive for mr. gross. jim glassman with us as well with j.p. morgan. is this enough of a jobs report reassessanet yellen policy? three-month moving average, 190,000 nonfarm payrolls. bill: that is good growth. the household survey was rather strong, too. for the prior three months, it

had been negative. this month shows good gains in wages and jobs. is it enough for janet yellen in september? i don't think so. i think she is still focused on global conditions. she is still worried about a strong dollar relative to emerging markets and other developed economies. maybe in december if this continues. but not for now. tom: if she begins a one step move, and he guess on how much -- any guess on how much the dollar would advance? bill: not really. the dollar would be stronger than it would be otherwise i would think. the dollar has been on that trend the past three or four months. fed if that bothers the it continues. we are going to have to play the globalization game as opposed to the domestic game going forward. tom: i think what all of our

viewers and listeners would agree, we are indiscreet distortion. it used to be the bond market was distorted. now it seems everything is distorted. how should viewers and listeners toat the economic debate assist them with their jobs, family, and investment? bill: i think the economic debate is more than just jobs. you heard jim glassman talk about the importance of jobs versus the importance of the real economy itself which is chugging along at 2% or a little less. i think the real economy is the key. what i have seen in the past three months is a strong surge in terms of consumer spending and nominal and real and pce almost at 7%. but it has been due to a drawdown of the savings rate. that cannot continue.

if consumers have been eating their nuts in the wintertime. thinking, it is spending power, disposable income which has only been growing at 2.1%. jobs help. higher wages help. we have not seen a significant push in terms of the ability to spend money. it has been in terms of the drawdown of the savings rate. tom: let's bring dr. glassman back in. go grossman with us. this savings rate paradox is critical. mind when oil prices came down, our energy outlays by the consumer sector plunged. consumers are slow on the draw. the savings rate jumped up with that happened. people are beginning to spend that windfall. i don't worry about it as much. i think the consumers have the wind at their back. tom: when you look at the economy and take out the

consumer spending their corn, there is not much going on. alan krueger says it is a dearth of government spending. which is it, bill gross? bill: i think it is a dearth of investment spending. you are right. the economy absent consumer spending is basically in a recession. a significant statement. it is barely below the line. nonetheless in terms of investment and anything that does not depend on consumer spending money which i maintain is due to a drawdown in the savings rate and a low rate of disposable income going forward, i think we have to worry about consumer spending versus investment. investment is lacking due to a number of structural things we can talk about. tom: i want to talk about the portfolio. futures advance. yields higher. when i say yields higher, that

makes you sad. are you losing money with the unconstrained fund as we speak? if you have a significantly higher duration. it does not have a duration. if interest rates go up it is opportunity to invest going forward. i have not seen the numbers. unconstrainednus is having a good day. tom: it is important what he said about the maturity of where you are. where isar investors, the appropriate duration or maturity for mere mortals? bill: that depends on your age and risk proclivity and the yield curve. that is all mixed into one. i have not given you an answer yet. i think at this point, the proper duration is close to zero.

i put out an investment outlook last week that said i don't like bonds. i don't like stocks. i think it is obvious with $10 trillion worth of bonds globally in a negative camp, common sense would tell you bonds are not attractive. you have to pay them. bonds are not an asset. they are a liability in a negative interest rate. why would someone want to own them even if they thought of go more negative? thanks to scarlet fu for a great interview with mr. gross the other day. you made world headlines. you said get out of bonds. lukewarm on stocks and you want to buy intangibles. there was a day where you bought a benjamin franklin stamp for more money than god. you made some kind of trade to do it. are you telling the audience we need to be stamp collectors? bill: no, because most of the good ones are gone.

they cannot possibly find the good ones. tom: what is intangible? bill: intangible is something d that youialize cannot buy in significant numbers or quantities on the new york stock exchange or in the bond markets. i think we are talking about real assets, meaning property, land. we are talking about gold to some extent. we are talking about assets left behind in terms of the drop in the nominal and real interest rates. tom: what will those intangibles do when vice chairman fisher --es from accommodative ultra accommodative to accommodative and to a restrictive policy? how will regular markets and how will intangibles react? move,typically, if they

it is based upon a higher rate of inflation. that ultimately becomes their bogey going forward. inflation would help real assets. it would help real estate, gold, intangibles left behind. it does depend on how fast the fed or any central bank would raise rates. if it is gradual and if the new neutral interest rates, which is becoming a topic of discussion among fed members, it has not been for the last five years, but now they are wondering the proper fed funds rate going forward. i think if they zero in on one or 1.5% in today's inflationary environment, it is not going to do much damage to those types of assets. those assets are earning typically in terms of cash flow or yield if you buy them on the exchange, they are yielding 6% or 8% so you have a little carry

along the way. tom: it is job stay on bloomberg radio. i want to talk to bill gross about the zeitgeist coming off of mark carney taking rates to the lowest level in 322 years at the bank of england. bill gross was collecting stamps 322 years ago or at least he owned them. maybe he owned original bank of england stamps. this is critical. what we learned yesterday is the total mystery of where inflation will be in the united kingdom after depreciation, after monetary stimulus and maybe after fiscal stimulus. where have a doubt about inflation will be in the united kingdom and united states one year and two years out? bill: in the u.k. based upon the 10% depreciation after brexit,

we have additional depreciation carney in the last few days. it should be higher in the u.k. then it is now. in the u.k., it is lower than the united states. let's put them together. the cpi to my way of thinking in the next few years will be 32.5%. i don't see any threat. i see continued structural forces that are forcing inflation down. i see structural unemployment. i see productivity gains in the 1% category. i see high debt levels that continue to suppress economic growth. yes, job gains for now. ultimately, i don't think they produce inflation of yesteryear. tom: should the fed do a rate increase to create wiggle room as governor carney mentioned

yesterday, the cliché of keeping your powder dry? if they raise rates wants, does that imply a vector to a more measured tone out months and years? can they pull off a one and done attitude in september? for anotherd done six to 12 months would be the pattern from last a super to this december i suppose. to my way of thinking, the fed funds rate has to go higher or else capitalism and financial institutions are being damaged. look at the met two days ago. billion were down $1 and they are laying off 20,000 people because of their annuities they promised highest rates -- higher rates and cannot earn them. we know about chicago and puerto rico pension funds. there are more to come. as long as the fed stays down

here, it has positive implications for asset prices but negative applications for structural business models which are capitalism dependent. it is common sense to me. tom: i want you to read bill gross' janus memo. you can close your eyes when he talks about victoria's secret and the masters and johnson stuff. you can be like this, bill gross. the capitalism paragraph is brilliant. bill gross, you talked about this for years, the damage done by this financial distortion. mark carney yesterday really got upset when he was asked a question about savers. what does this mean for the sabres of america? bill: it is very much of a negative. financial repression. and carney bankers several days ago expressed the

view that jobs and growth will take care of the pension problems later. i suppose that is not a bad way of looking at it. but we have been into this for five or six years and are beginning to see erosion at the margin in terms of business models. it is not just insurance companies. it is banks in terms of profitability. j.p.m. does not earn as much as before? not necessarily. ultimately, these financial institutions suffer. they are a significant part of the economy. capitalism needs a balance. at the moment, the balance is imbalanced because asset prices arehigh and liabilities significantly overwhelming their business models. tom: bill gross with us on bloomberg radio. good morning on bloomberg

television worldwide. metlife, tobacco, and real jobs being lost. the actuarial assumption is essentially a careful calculation of how much you need to make out a long time. bill gross, what is the actuarial assumption you would guess for the nation's pensions funds, for our insurance company quiet money? what is the actuarial assumption for a lousy 201 k? bill: 7% to 8%. tom: that high? bill: that is the assumption. that is what the actuary is saying. it is coming down slowly. they are all around 7.5%. what does that mean? bonds -- that stocks have to produce a double-digit

14% return to get that. unless they do, pension funds and mom-and-pop on main street are looking forward to their 401(k)s at 7% or 8%. that is what they are used to. if they don't get it, they are in trouble. pin you downyoto on this. one of our great financial theorists has an assumption way down. where is your working number for our viewers and listeners? it is not 7% or 8%, is it? bill: no, i think it has to be around 4%. that assumes maybe 5% for stocks. dividends at 2% and earnings growth perhaps at 2% to 3% in this new world. we have bonds around 3%. you mix them together in a 50/50

mix and it is a 4% to 5% number. it is not what we are used to. that means ultimately pensions have to adjust. they have to have more contributions or reduce benefit payments. both are negative in terms of the financial structure and markets we have seen for the past 30 years. tom: i want to break a rule. in the time left with you, and thanks for the ample time, we have to talk about our presidential derby. it has been front and center. do you glean an economic policy from either candidate that will drag us further from this financial crisis? bill: i don't see much to like. infrastructure spending, i think both sides can agree on that. the size is probably up for and that depends on

whether republicans maintain significant control of congress. i don't see anything from clinton or trump in terms of actual policies. tax cuts perhaps, taking care of student loans, but i don't see anything other than infrastructure spending. i think that is where most of the developed world is going. i saw that in japan in the last week when abi came out with his proposals. he talked about giving away $150 to 30 million people. that is helicopter money. if we begin to move in that direction, i think that is where we should go. but i don't see it at the moment. tom: many would suggest secretary clinton is keynesian, is mr. trump? bill: i don't think mr. trump is anything. not to denigrate mr. trump. but i don't think he has

advanced a specific policy of keynesianism. he has talked about monetary policy. he suggested interest rate should go up. other than that, i don't think he has a formative policy that could be put in at the moment. tom: when i look at the moment we have been in and you have been good about defining financial repression, i have service sector inflation at 3.2%. other measures below. what are the ramifications if janet yellen gets her best outcome first discussed by glenn charred -- blanchard of an overshoot? vintage us of a certain look back to the 1960's and walter heller and ugly outcomes of an overshoot. can there be a constructive inflation overshoot? bill: i think there can. that has been talked about lightly the past few years.

there has been an undershoot for a significant number of years. is significantly undershooting the trendline of 2% going forward. sure, there can be an overshoot. i think governors and presidents have talked about that. we could see it perhaps. yeah. let's forget about inflation for the moment because it is a deflationary world. let's worry about keynesian fiscal policy which might provide a push going forward. i think monetary policy is certainly weak and dying. jon: that was bill gross speaking to tom keene on bloomberg radio. this is "bloomberg " markets have an upside surprise delivered by the payrolls report.

255,000 the headline. the median estimate 188,000. . unemployment steady at 4.9%. just taking up from 9.6% to 9.7%. alan krueger still with us. you do have to scrape the b ower to find a touch of weakness. the underemployment rate showing any kind of weakness. >> it is a solid report. it is the kind i would have hoped for when i was working at the white house. the tick up in part-time for economic reasons is probably a concern. i think given the work week went up, it is less of a concern. by industry, the only weakness was mining which is not surprising given where we are in oil prices. alix: you did bring up average weekly earnings went up. overtime went up. ishael mckee said this

significant because you're adding a lot of money into the economy and inventories are starting to be built back up. >> i think if you look at retail employment, that rose strongly. i think this suggests the economy is continuing to strengthen and recovery is on course. david: coming back to the fed question, does this put september back on the table? >> i think september was already on the table. they will get another report before the meeting. who knows given the volatility in these numbers. i think this is an indication the labor market recovery continues and the weakness we were concerned about in may looks like it was a blip. jon: what is in the speech from fed chair janet yellen you think? >> that is interesting. i just made my plane reservation. it will be a more cheerful mood given this report than in may and with brexit.

i will be looking to see if she says anything about labor force participation. it has edged up over the last year in spite of the fastest wage growth in the recovery. i would be interested to see how much hidden slack she thinks remains. great to haveger, you on the program to your response to the july payrolls report in the united states. much more left. in the next hour, mohamed el-erian will join us. chiefblackrock's investment officer is here as we count you down to the market open on the back of an upside surprise on the payrolls report. alix: shares of bristol-myers getting hammered now in the premarket. the drug does not meet its goals in the long-term cancel trial could the test was to test it as a first-line cancer drug. it did not make it. this drug in the second quarter was its best-selling drug. it makes up almost 18% of

revenue. jon: a stock to watch. futures positive with dow futures up over 100 points. s&p 500 futures up over eight point. a stronger dollar story in the fx market. in the bond market, it is bear slamming. two-year yields pushing up. 10-year up as well. 30-year stays anchored. what does that tell you about what the bond market thinks of the u.s. economy and the global economy? we will dig further into july's upside surprise payrolls report. this is bloomberg. ♪

alix: we are 30 minutes from the

opening bell in new york city. this is "bloomberg " i am alix steel with jonathan faro and david westin. 255,000. david: after a strong month last month. alix: it seemed economists were looking for goldilocks. moving even higher. jon: good news is good news in the markets. positive reaction for risk assets. looking at futures and performance of the dollar. maybe recalibrating the debate at the federal reserve. to wait for the speech from fed chair janet yellen as we fast-forward to jackson hole. david: that will make the august 26 beach more interesting. jon: absolutely. big guests in the hour before we get to jackson hole. rieder athe hour, rick blackrock. weoomberg " david: now

want to go to washington to get an update on the numbers. julie hyman joins us outside the labor department. it is a solid set of numbers. take us through them. julie: 255,000 is the headline number. that was higher than estimates from economists we had in our survey. as you break it down, 217,000 was private. 38,000 government. 9000 in manufacturing. the estimate was for only 180,000. we did see the jobless rate steady at 4.9%. economists estimated that would tick down to 4.8%. the participation rate went up to 62.8 percent. better hourly rising than the .2% estimated. aside from the jobless rate itself, most of the other numbers coming in higher than estimated. the average work week going to

34.5 hours. that is the highest number since january. there were revisions to the payrolls numbers for may and june. of 18,000an addition over those two months. may did not look quite as negative as the initial read. the 12-month average now 200-6000. the six-month average 189,000. david: take us below the top line numbers. what sectors contributed to the growth in job numbers? julie: the government addition of 38,000, a lot of those were in teachers. local municipalities hiring teachers. there were gains in professional and business services that have to do the computing industry as well as the architectural profession. health care, education and health services seeing gains. leisure and hospitality was interesting to me considering there has been concern about travel in the wake of terrorist

attacks we have seen around the globe and also in the wake of the u.k. vote to leave the e.u. we will see how that shakes out in the coming months. those were the areas where we saw gains. continue to see declines within the mining industry. david: thank you so much. that is julie hyman reporting from the labor department in washington, d.c. jon: this is how it is playing out of the markets. upside surprise on the payrolls report. features up .3% on the s&p 500. the ftse up .6%. the dax up by .7%. you can see the spillover from the payrolls report into stocks and ethics as well. it is a stronger dollar story. , a delicate market dance between global central bank easing and strong economic data in the u.s.. the front end of the curve is a no-brainer. sensitive to what the fed may or

may not do in the rate hike debate, two-year yields selling off aggressively. i guess that is the story as we pivot forward to the jackson hole speech. the front end of the curve is doing the talking. alix: it has put a fine point on what he was talking about. this is the intraday of the two-year yield. you can see a huge spike in the yield and selloff in the treasury market. you are also seeing a selloff in the 10-year and 30-year although not as extreme as the two-year. our function is showing a 22% probability of a rate hike in september. on brexit, that was at zero so we have seen repricing over the last month and a half. we have big stock movers in the market. in particular, bristol-myers and merck. the bristol-myers cancer drug

did not make its goals in a long cancer trial. it was to test the efficacy of drug in, its number one the second quarter. merck is up because it has the second line treatment of the cancer drug. definitely a stock to watch premarket. the kraft heinz dividend raised. that is the story. they were able to have budget cuts which helped offset slower sales in coffee and hot dogs and frozen meals. the last stop to focus on premarket. yesterday, "the journal" was reporting a p.e. could come in and buy the company for the potential sale price of $4 billion. it has been working with bankers for about two years. we had big movers in tech. we want to go to abigail doolittle at the nasdaq looking at surprising earnings from priceline. >> we are. on priceline, shares are up sharply in the premarket on a strong second quarter report.

priceline beat earnings estimates bucking the bearish trend from competitors. importantly according to analysts, third-quarter guidance was much better than expected. they are looking for between 14% and 19% growth. lots of price targets were taken higher on the street. on priceline, the average analysts sees about 14% upside potential for shares. faring less well, fireeye. shares are plunging premarket. cybersecurity firm did/its full-year revenue and billing forecast by as much as 10% and 20% respectively after a second-quarter revenue miss. they also announced a 10% workforce reduction. not surprisingly on the bearish information there are at least three downgrades. eeyenheimer is saying fir is a solid takeover candidate. it seems some see opportunity

unless -- the midst difficulty. alix: thank you so much. now over to london where mark is looking at the euro stocks. consumer discretionary the story today in europe. up .6%.e every industry group is rising today. the focus is on earnings. the focus today solely on the banking industry on r.b.s., britain's biggest taxpayer owned lender posting a larger than expected loss in the second quarter. it set aside more money to cover a lawsuit over its 2008 share sale. it is five years into the plan to shrink it to a domestic lender as the economy shrinks because of brexit. it said today it may not reach its 2019 goal. shares down by 7.8%. listedlian publicly

investment bank, we had a bigger than it is -- expected quarter profit. they proposed a higher dividend. 31%.s have fallen by they are up 7% today. this is the difference in yields, the spread between the two-year and 30 year. in eight years in light of the big news yesterday. how much potential is there for a push down in two-year yields after carney said we are not going to go negative? that is the big question. over to you, david. david: not much ambiguity in his attitude towards negative rates. joining us from london is muhammad el-erian. we are going to talk about the jobs numbers in the united states. let me point out there are solid job numbers. no question. last week, we had disappointing

gdp numbers. that is part of a trend in the united states. how can you account for this divergence between the gdp growth and jobs growth on the other? >> it is a notable divergence. part of it is what alan krueger said. it is productivity which we don't fully understand yet. we don't know how much is a measurement question. we don't know how much is a new economy question. what is important is today's numbers are strong all-around. not only is it a strong employment report, but as jonathan said, the equity market is treating good news as good news. the rest of the markets are behaving as you would expect. this is encouraging. david: we are putting up a chart now that shows that convergence to the right. the yellow number being gdp and the white number on the top being the jobs growth. there is to version. what is this telling us? what to the jobs numbers tell us about the state of the economy? >> put the two things together.

the jobs numbers and last week's gdp number told you the household is fine. consumption continues to grow. now we have strong job creation, higher wages, for hours worked --more hours worked. the consumption side of the economy is holding up. what is not holding up his business investment. we have had an increase in inventory likely to discourage investment more. this is about corporate risk-taking been down here and household risk-taking and financial risk-taking being up here. is the main divergence when i look at the numbers. jon: you wonder what janet yellen thinks. it talked about the good news being good news chopper. we used to wonder what it would mean for the federal reserve. the labor market developed the way anticipated in december when a height -- they hiked interest rates.

why have they gone from communicating four in a year to a market saying you will be lucky to get another one? >> because of the global economy. that is holding them back. that has depressed expectations in the market of rate hikes. 22% for september i think is still too low. i would put it at 40% or 45%. if you look at the way the curve is behaving, the front and has sold off more than the backend and for good reasons. the front end is controlled by the fed. today's number tells you there is a higher probability they may hike rates this year. i was going to say you are talking about the yield curve. as we see the selloff in the bond market, particularly short-term and a rally in stocks , what kind of washout can we see? what is the effect of that on the markets? >> you're going to see it in the

currency. you are going to see a stronger dollar. there's going to be a question as to how begin behaves. more generally, market people should expect a pickup and volatility. we will see the fixed income volatility in other segments. teis notion we are in a sta of equilibrium on the economy and central banks can repress volatility, that notion has to dissipate. we are seeing more economic divergence and less effectiveness on the part of central banks. jon: i want to pick up on something you said about the curve behavior. we can put that on the screen for viewers. historically, this is incredibly flat. you can see it on the screen going back 10 years. the question i would ask, you just said the two-year is on

what the federal reserve may or may not do. i would like to propose something else. maybe the two-year is selling off and the 30-year is staying anchored because the market is saying we don't believe in the inflation of growth story and will not be selling the 30's. how much is that about a federal reserve policy mistake? >> it could well be. i don't know for sure. my inclination is the global influence is large. i see this because for a while, investors have been looking for yield wherever they can get them. where quite a bit of foreign participation in the u.s. market -- we have quite a bit of foreign participation in the u.s. market. it may be people believe the economy is not strong enough for a hike and if the fed does hike, it will pull the rug out from underneath it. the other things i look at suggest the global influence has been considerable on the u.s. yield curve. david: i want to come back to

something else you talked about, business investment and the lack of business investment. we have a chart that shows consumer spending going up while business investment is going down. what is the root cause of the failure of businesses to invest? that is directly tied to productivity. >> it is not about cash. there is lots of cash sitting on balance sheets. to the extent that comes off the balance sheet, it comes off in higher dividend payments or share buybacks. i think the corporate sector is looking at a few things. the uncertainty about the economic outlook. we have just added to that with the brexit vote. open,g your options making sure you have agility makes sense. secondly, there is uncertainty about policy. there is lots of uncertainty about tax policy. we live in a world where you make an investment decision that is not right and you can be really badly hurt.

there is a winner take all in terms of new investment. that leads to a lot greater risk aversion on the part of those that the play money to business investment -- deploy money to business investment. alix: we have data that suggests that may be changing. average hours were up as well as overtime. it could suggest inventories are starting to be built back up. does that portend hire business spending going forward? >> let me say you are right. the household sector is doing better. today's employment report is encouraging. higher wages, more hours worked. all that translates into more money in the pockets of the consumers. i think the corporate sector is being more hesitant. they are willing to stretch existing capacity. but we are not seeing a massive increase in the willingness to increase capacity. that is what we need in order to lead to this economic liftoff the u.s. economy is capable of and needs to have.

isid: mohamed el-erian staying with us. will weigh ineder on today's stronger-than-expected jobs report. this is bloomberg. ♪

jon: from new york city, this is bloomberg. where 12 minutes away from the market opening new york. features much more positive after a surprise to the upside in july's payroll report. dow futures up over 100 points. s&p up over eight. a rally in europe picking up steam. this is the state of play in the

other asset classes. yields climbing across the curve on the 10-year up about four basis points. a stronger dollar story captured by dollar-yen. the euro-dollar dropping to one dollar 1076. we pivot from a conversation about the labor market report to the other side of the trade, global monetary easing. englandy, the bank of unveiled a range of stimulus measures including the rate cuts to a new record low and more bond buying, including corporate debt. what does it mean for the investor? back with us is muhammad el-erian. talk to me about the significance of another central bank stepping into the corporate debt market. >> it is important. it shows you they will do whatever they can to support the economy. i really liked what the bank of england did for a different

reason. yes, they cut interest rates. yes, they reintroduced a qe program with bond purchase. they did other things that i think are important. they tried to lower the negative impact on the financial sector in order for the money to have a higher chance of making it to the consumer. and secondly, they communicated in a very's lists -- explicit manner and said the best thing the central bank can do is buy time and it is up to the government to deliver growth. it is important for central banks to be blunt about this. jon: 10 billion pounds does not sound like a lot of money. 150 billion eligible to be purchased. issuance has been low, under 5 billion pounds year to date. do you think supply will meet demand? will more companies look to issue in sterling on the back of a measure like this? >> yes, more will look to issue

because they will take advantage of lower interest rates and lower spreads. this will be a good time for them to issue. remember, the 10 billion is not just 10 billion. the bank of england is a permanent buyer. they are very unlikely to sell these bonds. it is a different type of buyer. the impact on the market is a multiple of the 10 billion. what: you said it appeared was going yesterday is mr. carney saying we will keep it going for a while but we have the government step in with further fiscal and other reforms. what should they be doing? there is a great mystery about this. they need to do four things. one is invest in progress structurally -- pro-growth structural reforms. that is important for the u.k. changing it structural relationship with europe. more fiscal management. third, they need to deal with

debt overhang. and finally, they need to contribute to better global and regional economic policy coordination. these areas are common to many countries. they are what the new government needs to do. alix: talking about carney, the decision last week, the stimulus aom abi on tuesday, versus potential fed that will have to price in hikes. can we see central bank divergence play out in the market? what does it look like? >> to some extent, you will see it. you will see it on graphs you show which is the front end of the curve. the difference on the front end yield in different countries and in currencies. you will not see it as much on the long and as you would have expected because of these interconnectedness of the financial markets. the front and of the fixed income market and currencies is where you will see it.

alix: does this signal to buy u.s. stocks and emerging markets? >> i would be careful because if you buy stocks aggressively, you are betting not only on central banks able to manipulate the market in the short-term. but able to handoff to government that can then promote economic growth that validates existing prices and pushes them higher. this is a moment to be very diversified. venture out the yield curve to areas where central banks cannot reach and maintain agility. this is a very unusual world. we will see lots of strange things happening. the one thing investors should remember is you cannot rely on correlations to be your risk mitigated. you have to be more aggressive on how you manage risk. jon: let's go deeper on portfolio construction. high cash allocation than previously.

what would you be waiting for to put that agility to work? what would you be waiting to happen in the markets to put the cash to work? >> the lesson of the last two years is being tactical is really important even if you are long-term structural investors. there is not much liquidity in the markets. when there is a change in paradigm, we saw in january and february in several times last year, whenever there is a change in the paradigm, markets overshoot. that is particularly true for those who lack sponsorship such as emerging markets. be able to act tactically as well as strategically and structurally. that is the big lesson and something investors have got to get used to if they are going to generate the sort of returns they need to generate. david: i wonder if there is a tension in your advice. as you go for bigger yield, sometimes you lose some of the tactical maneuverability.

real estate might give you a bigger yield but you lose liquidity. where are you on that? >> sizing and scaling matter a great deal. the barbell is larger down here in the cash than it is up here in the totally liquid. the middle, you have to be very careful and much more tactical venue would be otherwise. i also would say be careful about buying into passive investments making sense everywhere. they don't. this is an environment where our thought -- alpha will do more heavy lifting thean the beta side. el-erian, it has been fantastic to get your reaction to the july payrolls report from london. thank you very much. we are talking about flat curves. the e.u. bond curve the flattest in eight years. we are seeing it on treasuries as well.

the front and is the u.s. domestic fed story. the debate as to what it means, but ultimately it is a global bond market. the 30-your performance tells you a lot about it. we saw in japan a huge re-rating. see if been waiting to there is a level on the 10-year that will wipe out stocks. we are counting you down to the market open from new york. dow futures positive, over 100 points. s&p 500 futures of over nine. a stronger dollar, weaker treasury session. up next is the market open. this is bloomberg. ♪ [hip hop beat]

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♪ to the couch where you at? ♪ ♪ show me the latest medal count♪ ♪xfinity's where it's at. ♪ welcome to it all. comcast nbcuniversal is proud to bring you coverage of the rio olympic games. hohey s w'oiit ghong, estcak ?hoestcak .th lais p hceotas hkeca hyso wn' aret't ey llsekeg lica hotkes? cwithstomcain business tean fid wi, pro cthey bould e.ju ddst aus a czetomid ey age yltowiour rofi pas splgeh pa an u'd yo 'll yeastr cusomerer wheie thesr ey a aredylrea -ju ddst aus a czetomid ey age on dheiresevic pas splgeh pa .or upder 'its hare tstn jui, wif c itelan howp grr younebusiss. u y'don'e t se ethat dveryay odintrg ucin pwifiwiro, fi hthatelyorow usur bs.ines ascomct .ness t builbufor sssine jon: from new york, this is bloomberg. the jonathan ferwe are 20 secom market open.

dow futures up over 100 points. good news is good news. points,futures up nine surprise on a payroll report in the united states. treasuries weaker, yields higher, up four basis points on the 10-year. the dollar is stronger, with dollar having yen headed back to the 100 to handle. 102 handle. 20 seconds into the market open, let's cross over to alix steel. away for thep and major averages, although less than a rally -- less of a rally than we saw in the premarket. not huge gains across the board, but like jon said, good news is good news, something we have not seen very much reflected in the market. to get a sense of how the s&p reacted on the job numbers, we are looking at the s&p many.

ini.'s the s&p m you saw an increase in the s&p futures as we got the job numbers out. we are off the highs a little bit, but nonetheless pretty strong across the board. word, we will look at what is moving in the individual indices per you have tech front and center, up .5 of 1%. see if that is going to change due to the fact that they could be getting a boost in the margins. the big banks are moving much higher. in particular, bank of america and citigroup. yield do have a two-year moving higher, does that help the bank's profitability, help them make money? a huge selloff in the bond market, a big jump in yields. you also saw a jump in the 10

and 30-year yields, but not as much as the two-year, so the bear flatten her continues to be the theme -- continues to be the bear -- the bear flattener continues to be the theme overall. now the probability of a rate hike in 26% on the day of brexit. a september rate hike call was 0%. many economists were looking for your mid-2018. so the story of the markets, re-rating their rate hike potential off the jobs data continues. david: thank you, alix. we are looking at bristol-myers. their shares are plunging after disappointing news over one of their cancer drugs. joining us now is our correspondent who covers health

care. explain to us why it is so important to bristol-myers. bristol-myers squibb's main cancer drug. there were hopes over opdiv o, where the come he was supposed to report its study. it showed up negative, and we have some criticism as to why it showed up negative. there were certain cut off that they should have used. this was very unexpected. they thought they had was thise in the ba. david: they have substantial revenues, not hundred million dollars in revenue. this was a question whether it could be used for more people in other applications, correct? >> it is now used to treat four

or five different types of cancer. one was going to be used cancer,tline lung the first drug you take when you are diagnosed with lung cancer. lung cancer is among the top three types of cancers in the world. david: it was projected to go, to $7 billion. does this mean that is not going to happen? >> $7 billion seemed to be a bit of a stretch. but as a combination therapy, they missed on this drug as a single agent. they still have other drugs coming further down the line. this means that compared to merck, they have this golden opportunity because they will that would have accounted for 25% of all frontline lung cancers. they will be the only one

approved over the next 12 months or so. the big upside surprise in the labor market, we saw with payrolls this money, two hundred 55,000 jobs added in july. are ourh their take guests. great to have your reaction. let's begin with you. there will be more context, i would imagine. >> it is a solid number. we have been tracking some of this high-frequency data. the data has picked up, particularly the yen starting to stabilize. number would be on and around expectations. we are surprised by how solid it was. if you said to me where we are in the cycle, i would have

thought you take a three month moving average, i thought we would have trended closer to 1.50 -- closer to 150. we are closer to 190. david: does that tell us we are not as close to full employment as we thought we were? i think we are very closer to full employment, and this pushes us a little closer as well. at seasonally adjusted numbers, one million people leaving the payrolls in the month of july. it was about the same number, at least in the first report. i am surprised the number is only 255,000. i would have thought it would have been 285,000 or something like that. we will see how it ends up. david: we think we are getting close to full employment, and another 255,000 people get jobs. rick: take the new economy, the

older economy, and the dispersion is extraordinary. education,leisure, health care services, professional business services -- all of it. it is the same dynamic you see every single month, and that will not change this month. we are going to continue to see that dispersion in all the earnings reports. and this new economy is still hiring people. i have to say it is even a faster pace than i would have thought, given some of these areas that have had such extraordinary growth. it was a temporary hiring that really started to dip. that has turned around the last couple of months. that is a good sign that the economy is in pretty good shape. i still think the u.s. economy is doing better than people think, using the right data, not some of the older gdp metrics. alix: jack, when you had to put money to work, how do you do

that when you are looking down the barrel of central bank savers? jack: at some point that will have to come to an end. meaning that you will see rates go up. alix: across-the-board? jack: across the board. it is going to have to happen at some point. in a meantime, it is going to be against the backdrop of pretty slow growth in general globally. places. and a few other may be the leaders here. but we are tending to look away from liquid investments because i just do not think you are going to make it in equities and fixed income. jon: bill gross comes out this week and says he does not like bonds or stocks. he said it again today. are you like bill gross right now? real hard assets? assets think real hard of the place to be here. number two, you have to look at

the illiquidity premium that exists out there bank and when you're able to invest in something that may be traded away from you in a day. this is something that we are going to have to look at very closely. investors are going to have to realize how much liquidity do they really need. if they really need liquidity, they will not -- jon: your thoughts, rick? think anybody likes these valuations. these valuations are not attractive. they are more tractive in equity today, and probably you see movement it's a hard asset real estate, etc. the amount of money in a world -- in the world that is demanding income is extraordinary. it will be interesting to watch the last time we got a strong employment number. people need the assets. i have never seen anything like it. there is a demand versus supply gap that is historic.

the market should end up softer given the solid nature of this number, and i am blown away every day when we come in in the morning and say how much buying came in overseas. that is a -- that is demographically driven. allianz spoke to bloomberg tv today, the cfo. "i do not like the central bankers in my market, that i have to compete with a price-sensitive central bank in my market." two rick's point, that is not being issued. or are it stay the same, yields at an all-time low, so will we see a boost of supply? we'll see a lot of physical activity coming not just out of the u.s. but out of the world. i think we are going to see the issuance of new paper. it is a question of what rate is

going to be issued. i still say that you have to look away from what i would call tradable debt. if you can trade the debt, it will be at a low yield. that is all there is to it. you are going to have to really decide how much liquidity you actually need in your portfolio. i think for the next five years, maybe 10. david: jack, thanks so much for being here today. jack rivkin. rick rieder will stay with us. ounce this plan to purchase corporate debt. what is the next thing for the credit market? we will discuss that next. this is bloomberg. ♪

jon: this is this is bloomberg. -- this is "bloomberg ."

i am jonathan ferro. they do today, david: coming up at the top of the next hour, it will be "bloomberg markets" with mark barton and vonnie quinn. hour, we willxt be speaking to different people about jack martel, the governor of delaware. that state has a much lower unemployment rate than the rest of the country. when and 50% of companies in the united states are registered in delaware. and there is tax-free shopping, so why does delaware have this and whatent rate, advice would be governor have for other states? he has been rumored to be the potential education secretary if there were to be a clinton administration. we will also be speaking with the ceo of paychex, what he

is seeing at a granular level of processing all this paychecks. we all want to move to delaware, alix. alix: we are looking at the s&p 21.76. its closing high, what does a fed re-rate hike mean for the yield market? rick rieder is still with us. can we still see the high -- with this number, the odds of the fed going in september are still low. going in front of an election is pretty difficult for the fed. and the uncertainty was still have not seen with the european growth play out. thee is still a lot that to fed from going. that being said, one of the things we believe in is diversify your fixed income. we like owning high-yield.

we also like owning parts of emerging markets today. the yield is better in emerging markets, but the demand for anything that is income like high yield will continue to be robust or that is not going away. ultimate fighting championship issued some debt, 500 million of high risk loans when for sale. demand, $2 billion. jon: we keep seeing these issues, but what we have seen in the treasury market in terms of options is the lack of weak demand. rick: i would say a couple of things. the last couple of auctions have been softer. there is definitely a transition. rates, say u.s. interest they are still attractive relative to the rest of the world but they are too high. treasury at 150 makes no fundamental sense.

relative what the bank of there is a greater demand to what we like in our portfolios. assets are more important than treasuries. deal, he gets me some yield without taking longer-term interest rate risk. the demand is epic. david: are the emerging markets big beneficiaries in this? rick: tremendous. as long as you believe the fed is going to be delivered, dollar stays relatively contained, as long as rates stay relatively contained in the u.s., the high-frequency data in china has been a big better. as long as those three things kick in in places like brazil, where real rates are in places like brazil or argentina, 300 or 400 basis points, real rates, in indonesia, we are talking about where guilt is trading. look at where real rates are. as long as things are stable and the view is we will be

relatively stable in the back half of the year, particularly the u.s. economy is growing ok. emerging markets are the beneficiary. alix: u.s. corporate's, right? appleve microsoft, issuing bonds because they can and because there is so much demand for those kinds of bonds, the investment-grade bonds. what kind of issuance can we see in the back half of the year from u.s. corporate as you have the boe bond buying program? rick: it will continue to be steady. if you have not tapped into the bond market yet, most companies had a chance to do it and i think you will continue to see steady supply that will be easily absorbed. you are getting decent levels, the same supplies last year. decent levels of supply, and some of the deals are attractive. particularly if it is a new company or is in a different is 4.5 timesverage

subscription. the leverage on investment-grade is going up significantly. so it is not like these are better credit stories. if you want to grow your are a we, put a bit more leverage on it. but the debt is easily absorbed. everyone is a winner on both sides of the trade. that makes me uncomfortable. surely someone ends up a loser. is it the people holding that stuff essentially? rick: the whole rates market broadly, savers are losing because we should be buying high-yield at cheaper prices than where we are today. some of the monetary policy is a bit excessive. i agree with the comments that we are seeing a transition. i do not think we will get a lot easier. we are certainly not going to get a lot further into the rate

category with the bank of england. but i do think that we would like to see parts of the high-yield market are full. 3%, tied by handles. we still think it is going to do its job and high-yield will be doing well. aree emerging markets significantly of better value. is a lot of debt issuance. it makes sense below yield. in the u.k. to date, 4 billion pounds -- 4.9 billion pounds -- why is it so low? why aren't u.k. companies issuing a lot of debt? you have had a two or three-year period of low rates, so a lot of companies have termed their debt out already that do not need to continue to do that. the fairthink about amount of debt coming into the

market, when you take something extraordinary, net of what central bank for buying in the world, net of coupons, we show an amazing chart that the net of coupons that have to be reinvested, it is almost nothing. we live in this crazy world. some of it is demographics. they have roll over their assets. it is pretty extraordinary. we and a number of investors have asked issuers, particularly in places like high-yield's -- a lot companies have done it already. the other point is that the central banks are not sellers. fantastic to have you with us on the program to have your insight on that upside surprise of the payroll report for july. points 500 is up by 14 on the session.

switch up the board, a strong rally for the dollar. weak session for treasuries. from new york, this is bloomberg. ♪

jon: this is bloomberg. a rally in the extra market. equities in the united states, the s&p 500 up almost 14 points, and a single point away from another high. alix: what does all this mean for the ipo market? i sat down with liz myers of jpmorgan yesterday. we discussed a lot of things. i asked her where the next billion-dollar tech ipo is. liz: there will be a large number of technology ipo's, and the question is, when will they come? we have over a dozen expected before the end of the year.

so the size of the larger ones that many think about are probably more in 2017, 2018, but there are a number of interesting segments. it will be around software, internet. as you get into 2018, more virtual reality, artificial intelligence, robotics, etc. alix: i asked her what the fed rate hike means. and a shock tois the brakes on ipo market. but you know it is coming, that it is kind of grinding around. that is ok, as long as they market and the fed expectation meet at some point. david: the jobs numbers coming out today will not affect the ipo market. they will be reassuring to the ipo market. it will be a breath of a sigh of relief, actually. we are doing all right. main number looks like

more of an anomaly. ke six-month average of 172 bumped up. david: it is over 190 now. alix: but it does change the equity market. liz myers says you get on ipo, it is successful. you can join us on monday on "bloomberg " for the rest of my conversation with liz myers. there we go. looking forward to monday already. weekend,orward to the as we wrap up trading. good news is good news. it is an upside report on payroll. this is bloomberg. ♪

>> live from london, i'm mark barton, this is bloomberg markets on bloomberg television.

bonnie: we're going to take from you washington to london and cover stories out of germany and china in the next hour. here's what we're watching. 255,000, that's how many jobs were added in the u.s. in the month of july, blowing out estimates from economists we surveyed. a promising bump, but will it be enough for the federal reserve to raise rates in september? mark: despite disappointing earnings, allianz's c.f.o. tells bloomberg that there will nobody more cost cuts. we'll bring you his comments on the next phase for one of the world's biggest mutual funds. bonnie: and the state of play from one state with record-setting job growth, delaware governor gives his prediction for labor growth.