stabilizes. more pain ahead for the funds. of the most highly anticipated g-20 summits in years. it is payroll friday in the united states. consensus looks great. from new york city for our viewers worldwide, good morning. this is bloomberg daybreak. to get you set up for the market action today, the one thing you need to know is the on market route stabilizes a little bit yields are growing up higher by two basis points. the euro falls back by .1%. futures go nowhere, but we go toward a second straight week of losses. alix: crude is getting pummeled did you get the june jobs numbers. to --0 jobs are forecast

forecast. the fed will publish its monetary policy report to congress. lawmakers will have the weekend to go over the report for janet yellen's testimony next week. are going to move oil prices. david: let's get an update and months making headlines. hamburg, it's another day of clashes between protesters and police as the g-20 summit gets underway. protestersization were hit with water cannons. president trump will meet with vladimir putin. the leaders of the u.s., japan, and south korea keep pressure on china over north korea. discussion about responding to the missile launch.

president trump has signaled his frustration to rein in north korea. computers in into u.s. power plants. the chief suspect is russia. current u.s. officials say one of the plants targeted was the wolf creek nuclear power plant in kansas. they could disrupt the power supply. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. global leaders are meeting in hamburg, germany for the first day of the g-20 summit. it is highlighting tensions reshaping global policy. a few highlights for today president trump meeting with the president of mexico. a.m., a statement on climate and energy. president trump will meet with

the president of russia. they will have a lovely dinner altogether. they will all hold hands and sing. matt miller is standing by. it a lot is common up today. are we expecting anything significant coming out of that? here a lot of the people aren't expecting anything that would affect the geopolitical situation right here and right now. meeting, longer-term as has been past meetings between u.s. and russia. skip the working session on climate change since they are going to meet 15 minutes into that session. pulled out of the paris climate accord. that's an important point to make. the germans are hosting this

g-20. right now, climate is at the top of their agenda along with trading immigration and a couple of other issues donald trump doesn't want to talk about. take a look at the g7 that happened. the biggest thing was the handshake between macron and the president of the united states. why is this going to be different? everyone is interested in the theater. why is this more material in terms of policy? matt: i think it's very interesting in the timing. actions byhad central banks that look almost like they've been talking to each other and coordinating policy. you have the dramatic rise in rates we've seen over the past couple of days. she deputy finance minister met.

the sherpas have been meeting as well. the global meetings -- leaders are meeting. it will be interesting to see if they have anything to say. they will be working much more closely together on economics and trade. them, theyt 19 of will be working together. i am leaving one out because it seems the u.s. is the odd man out on almost all of these issues. david: thank you so much. oftenesident stopped poland where he laid out issues he expects to address at the summit starting today. helperica stands ready to poland and other european nations to diversify their energy supplies so you can never be held hostage to a single supplier.

it's a shame they are behaving this way. they are behaving in a very, very dangerous manner. something will have to be done about it. mistakes have been made. russia, but i think it was probably other people and/or countries. i see nothing wrong with that statement. nobody really knows for sure. david: joining us is nicholas burns. diplomat whor served as the ambassador to greece in nato. welcome back. happened while we were on the air yesterday with president trump speaking out on various issues. he not only admitted that perhaps the russians were involved in the interference in the election, he admonished them about the ukraine. is there a change in his

position? >> it's a very good question. i'm not sure we know the answer. we saw two different president trump's yesterday. one was the script did president trump in poland where he criticized russia for destabilizing activity. article fiveirmed for the first time. in that press conference, i thought he gave vladimir putin a break on whether the russians interfered in our elections. our intelligence community is 100% unified. think there is a question about whether he really believes who was the real trump is and we will find that more today if he does not raise this issue of russian interference. i think there is going to be severe criticism here in the united states.

we're watching the leaders file in. david: they are coming together for the family photo. they will take some photos with all of the leaders filing in. view, whatoint of should a president trump try to accomplish as he meets with president vladimir putin? : i think it's a consequential meeting. they have just now met at this session you are showing. they will have a bilateral meeting. it's very important they find a way to work together. they are too powerful leaders of powerful countries. there will be crises ahead. that is goal number one. number two, can we look for areas where we can work together. , the nuclearan deal, north korea, syria. there are things we should talk about. trump has to be

tough on the sanctions on ukraine for vladimir putin's annexation and i thinks he has to be tough on the election. vladimir putin is an autocrat. and a former kgb officer. presidents, he's been in power for 18 years, you've got to be very clear and definite about about what you are not going to do. i think the president needs to do that today and it's unclear if he will do that. that's the main story today. joanathan: the prime minister is standing next to the eu president. we see the head of turkey next to the russian president. there she is, front and center and in red.

when it comes to an investor perspective, what is the biggest risk over the g-20. net: i think germany is emerging as the leader in europe. maybe even the leader of the west. merkel is the most experienced leader. she is very highly regarded. you're going to see disagreements here. i don't know if the united states will take the actions on steel it's been threatening. we've had those disagreements for the last 40 or 50 years. it hasn't affected the basis of the alliance. trump needs to get into the mainstream with france and germany to contain russian power in eastern europe. merkel and mccrone have been very tough on sanctions. the eu just affirm them a couple of weeks ago.

i think also we will have to see if the united states is willing to continue talking about climate change. we are out of the paris agreement. we are isolated on that issue. david: talk about what appears to be a vacuum as president trump steps back and president g has really spoken out on trade. he criticized president trump for protectionism. is this an opportunity to take leadership. nick: it's a rough game in international politics. you did see them criticized united states for protectionism, starting with that davos speech. the chinese see and opening to enhance their global leadership. they see the economic agenda of the u.s. and the criticism of

the eu and nato. you see jockeying for power. extent, merkel is so self-confident in who she is and what germany and europe represent. i think that's a very interesting story. say, thead for me to pulling back of london and washington as the two pillars of global political party, it's a sad day when you see that. what fly on the wall would you want to be in? vladimir putin in donald trump for sure? coming up later, it is jobs day. we will see bill gross. blackrock and the secretary of labor. this is bloomberg. ♪

than 90e're less minutes away from the june jobs report, which will recover from the disappointing numbers in may. hitting recorde highs with turnover. joining us is michael mckee. he is in washington. projectionsbout the

and the recovery from eight. michael: we are seeing a slowdown in hiring, not as dramatic as we saw in may. what happened was seasonal adjustment. apparently, did not capture the people who were going to be taking the summer jobs, the high school and college students. a lot of that will be added back in today. we move up to 178,000. there is no change in the unemployment rate. it could go higher if we attract more people into the labor force. that will be the unemployment rate going up for good reason. everyone is going to be looking at the wage numbers. we expect .3% growth. that is still a disappointment. in december, we were at 2.9%. we are looking for wages to go higher.

again, it's likely to go down if we have some strong hiring. more people could be coming into the workforce. it has gotten down to about a decade low. it still has farther to go. that is why we don't see wages rise. there is still slack in the labor force. they could take jobs and employers to have to pay up yet. leaders see the converge in hamburg. you saw president trump talking. it looked like a trio conversation. be real question is going to wages. are we in a place where we to expect less wage growth than in the past? michael: that is an interesting question. are people so scared of losing their jobs after their

experiences in the recession that they are not demanding higher wages? we see a decline in union power. this is a survey data problem. i have a chart from steve stanley. at the wage tracker , which has a full percentage point above average earnings. he looked at median wages. retiring, that would bring the average down. maybe wage growth is not as slow as people think. that is something for the set -- fed to think about. alix: joining us is jim o'sullivan, the top ranked forecaster on the bloomberg. and from london is daniel morris. jim, i want to start with you. was to call for today?

jim: it should be better than last month. the trend looks pretty good. i've got 190. i am taking the over relative to the consensus. it should be a good number. joanathan: what did the tea leaves tell you about 190? over the last 12 months is 189. i don't think there is any significant slowing given there is no trend yet. it looks like the 138 last month. there is volatility in the data. herenk the big picture signals jobless claims. 190 might be a little bit above the trend. joanathan: looking at the situation for the fad, there is only one question. will this be bad enough to stop

them from hiking again? it's smooth sailing to the next hike. get an increase in wage growth in the context, that is the biggest concern that we have. not quite what we had before. that could probably be the big issue. on the other end, if we are so weak that it causes the fed to push off the december hike, it is certainly possible. david: connect the dots for me. through to we get the fad. we track the use rate. that is the blue number going down. the white number is a little noisy going up and down.

how direct is this correlation? how much can the fed rely on strong employment numbers? >> in the long run, there is something more important. there is always some uncertainty over what is for climate worried that officials as a group are at 4.6%. it's only in the last few months that we working through that level. the relationship between employment and unemployment is it's not until the rate drops below the full employment level it you get upward pressure on inflation. i think giving it time, you will see more pressure. we do see acceleration in wages. i think we will see a bit of a pickup. agree there is evidence out there that the earnings numbers

that capturing the extent to which there is upward pressure on wages. obviously, less couple of months have been meager because of phone services. given time, it keeps falling and we get 190,000 a month on payroll, it will get pressure. i've been quoting the words of the former fed chair alan greenspan. laws ofd to say the supply and demand have not been repealed. i think that applies in this context. joanathan: this is the group of g-20 leaders. other one is right here in the united states. we want to cross back over to london. he spent a few minutes talking about payroll. i wonder whether the jobs report

has diminished importance for the federal reserve. maybe they are looking at financial markets? make don't expect it to much of a difference. we think it is driven partly by what happening in europe. it is more important what we will see from the cpi. finally, we got to think of the broad context. they have worried about keeping real interest rates low. think back to 2004, that affected the mortgage level. we don't want to have this environment. we spent the whole we talking about reining in financial risk, now we talk

about risk-free asset. about high risk tolerance, you're not talking about treasuries. is whatral reserve happening with the equity market. why was the conversation about what will happen with the fund market. >> i think you are right. the fed is signaling concern about prices generally. the concerned that with these low interest rates, they have to revert and that's going to be painful. factor that's as much a in their decision making as looking at tce. they are trying to balance all of these different factors to get to a lever of rate they think is normal. they've got to trade-off.

you are watching merkel addressed the g-20. they are starting their working lunch. this is the first session as the leaders get underway. this is a top story we're following this morning. is it possible that we continue to get weaker wage numbers, softer inflation because of the financial stability? >> certainly on the financial stability point, we have heard that more is a factor. to say that conditions are easy, that is indicative of too much risk being taken. ultimately, it is more the economic data. if the labor markets continue to be strong, they will push if the numbers are on the softer side.

i would say of those things, the labor market is not slowing down at this point. wage numbers are clearly accelerating. there is more ambiguity on the wage numbers. joanathan: coming up a little bit later, the former democratic joinednator we will be with reaction to the report. you're watching bloomberg. ♪

joanathan: you're watching bloomberg daybreak. we will get you set up this friday. futures are treading water. we go nowhere.

we are pretty much dead flat on the s&p 500. the big question is where is the bond market? there it is for you. ferris some stabilization. 238 is your yield on the u.s. tenure. the cable rate is looking soft at 129 against the dollar. speaking of week, check out crude. it is down by three or four percentage points. that's the story of the markets. emma: in hamburg, protests resumed today. police used water cannons to clear the streets. president trump and others had to take the tourist to get there. saysman news agency

alliant trump is unable to leave where she is staying because of security reasons. pressure on the china over north korea. they had a vivid discussion about responding to the north korean missile launch. president trump the signaled his frustration about the efforts to rein in north korea. business does -- british business leaders have advice on dealing with brexit. executives say the have momentum. the former fed chair said there is a more efficient way. the rule restricts trading to have risks. steve mnuchin proposed a rule to be simplified.

global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. joanathan: it's all eyes on hamburg germany for the g-20 summit. it is chaired by chancellor angela merkel. she has the opening speech. the 20 motto is creating an interconnected world. finding localfor solutions. compromise, find calling for a spirit of compromise. this is the key line. risk should not be papered over. situation as many have in the past. they sit around the table and they put out a communicative. you think they will talk about global trade and you look at what china does. this feels different. someone is saying there are differences and we should not

pretend they exist. they just started this session on global trade. tox: she is just talking president trump at the end of the day. joanathan: there is a message for china in there as well. many times they talk about free trade. china has gone its own weight. they have maintained huge tariffs while other countries of not been able to do so. the president is under criticism for his china policy. we haven't seen the policy at. there are some sectors in china that many u.s. companies cannot get into. she is preaching from the sermon of globalization.

it's a good speech. joanathan: u.s. tech companies are enjoying the liberalization of free trade with the eight chinese economy. i wonder what they would say back. in the markets, it's been a rough week. bonds are stabilizing today. c oprah takes more pain ahead for bonds and the 10 year yield in the u.s.. he is not alone. they are morning about borrowing costs. is direction of policy reversing our responsibility. the closest to the exit with a sharp eye. around the table with us is dan morris in london. dan, let's begin with you.

the portfolio guy. what does that mean? dan: we are looking at two things. right now, we're looking at markers to react negatively to what's going on. honestly, equities have reacted modestly. thatink in the short term could be an opportunity. longer-term, yields are going to be higher. we think it's a transition. this has been going on for a year. we have been anticipating that transition. we have more prices for fixed income. alix: the big line in the sand big51 points you saw this shoot up in volume.

it was a really big move. how much of it was about fundamentals and how much was a technical breakout? beenit may have just reaction to what draghi said last week. announcementd an of further quantitative easing starting next year. that is more or less what he said. suggests a technical move and something fundamental. i don't think will change much of what we anticipate next year. alix: the stress we saw in the bond market did not translate to areas of the corporate market. the white line is investment-grade credit. the blue line is high-yield. that did not make sense to me. is the search for yield over? market is strong

as well. this, itnless you see can exchange -- had to the equity market. this is still a very low level of yield. it is somewhat normalization. this is not a threat to the cycle at this point. alix: last year we said 2% was the threat. what is it now? jim: i agree with the comments. it will probably hedge over 3% by next year. that is in the context of the fed tightening. some limitsis seen coming down. they are not suddenly shooting up and causing panic. these are very low levels of rates. they are not as low as they have been. ins has been extraordinary terms of the fed action and global central banks playing a

role. david: there is no question there are breaks. is it inevitable that where the , theyl banks are heading are signaling sooner or later they will have to tighten monetary policy. are these the yield levels we will have? paceit's all about the that determines the rate. if we get to 3%. enough pace.adual this is why they are sensitive around the communication and moving toward a real interest rate. that is something that is perfectly understandable and advisable. we have had gdp growth of over 2% in the past.

this is just the transition that's going to be the challenge. it's all about communication. we to make that transition without a big selloff in the market. joanathan: at the heart of all this is ecb policy. we have talked about treasuries. i'm not sure the ecb and the federal reserve is concerned about german aro in costs. if you have a significant back yields, that continues to the next several months. that's going to make things hard to do. >> a think that's going to be the biggest challenge. if we get to the first quarter of next year, if the ecb is tapering, yields moving up and we get more worried about the political situation in italy. there would be pressure for them to slow down and not upset the market.

i think their perspective is going to be that italy has problems. they can enter into an agreement. that's what they're going to offer as a solution. noting down qe end that's owing to -- david: are they right? should bond investors be heading toward the exit? -- we're not market strategist. if the rate continues to fall here and inflation and wages are drifting up, at least with the amount of tightening they are talking about, this is my own forecast that the yield will be over 3% by 2018. david: thank you so much.

thanks very much for both of you for joining us. they will all be joining us on the payroll numbers out in less than an hour from now. live from new york and washington, this is bloomberg. ♪

emma: this is the enterprise green room. bill gross will be with us. stay with us. now to your bloomberg business flash. walmart has gone to japan's of bond market here in they sold

$1.5 billion. they took advantage of falling fundraising costs. there are no more systemic issues in italian banks after the capital injection. they spoke to bloomberg tv. completeappened is a turning point for the banking industry in italy. capital, he told the banks will be saved. the risk is good now. the: they are on track for best year. that is the bloomberg business flash. alix: north korea is a center of discussion in hamburg. shame that they are

behaving this way. they are behaving in a very dangerous manner. something will have to be done >> we recognize that north korea is a danger for global peace. >> this is a big threat in provocation. north korea should stop them easily. we should impose sanctions. >> out of no. we will see what happens. i don't draw drug -- bloodlines. policyith this is reporter. think you won't see much more than statements condemning the north connection. the u.s. is trying to build a coalition of countries to exert

rusher on north korea and they want other countries to publicly say what they are doing to clamp down on any business ties or economic activity by north korea. twochallenges you have sides on this that see things different. once much stricter sanctions and north korea. on the other side, you have china and russia. they should give up their nuclear missile program. they don't want to strangle the economy completely. they fear the repercussions geopolitically. a central crux of the issue right now. to condemn.n. wanted the missile test. russia and china voted against it. who has the power when it comes to north korea?

: these are the issues that are played out for decades when it comes to north korea. there is a divide between the u.s. and china on how to deal with north korea. is theectation right now u.s. and its allies ticket tough stance. ultimately, they will not be able to bridge the divide with china. if you don't have china on board, you're not going to get very far. ist the chinese what to see negotiation. we are not going to get into that unless we have a firm north korea is willing to give up their nuclear program. david: china's role as one of the great points of the g-20. after 36 years in the u.s.

ambassador tothe beijing. he joins us from montana. ambassador, welcome back. let's pick up on north korea specifically. nucleara problem, a north korea. is the chinese president in a fitting from the belligerent talk of president trump. he gets to play a good cop. china will do anything in its own national interests. china wants to use north korea. i am quite concerned that we are not going to make much headway with china. i think the president played

president trump at mar-a-lago. the chinese are very experienced with this. they know how to play american presidents. past, they are very around, iit this time think president trump has realized this guy is a lot tougher character and more difficult to deal with and he realized. have to come up with a strong basic strategy for how we handle china generally. that will go a long way toward north korea. outspoken foreen free trade. he came out today and i will quote what he said. significantly

backtracked positions on trade, climate change, other issues. that he speak in one voice and secure the world economy in the right traction. he is calling out president trump here, is there an opportunity to call his bluff? think there is. the is the pot calling kettle black. china is a very protectionist country. i think we americans have let china get away with a lot in the tech industry. i roll my eyes. they are very protectionist. we should do more against that. joanathan: global markets have not really reacted.

the president talked about red lines. markets could be military expansion in north korea. could cost them the people in south korea. they can leave the north korea -- koreans alone and see what happens. they will make these incremental steps in terms of technology and weapons. are we closer to a point where you look at the situation and they are closer to when they have that nuclear weapons? max: there's no question about it. i think north korea has progressed much more likely than we projected. put sufficient pressure on north korea. we think we are superior in smarter than everybody else.

the fact is, we are not. other countries are smarter and workout you. being clear not enough that was going on. movingre many experts this direction. even china moving into the south china sea, we didn't do anything about it. we are now paying the price. david: you watch north korea for years. have you ever seen anybody influence north korea effectively? max: not really. the words used were very disparaging about kim jong n. he was quite clearly upset her the chinese haven't done

anything about it i have not seen anything like this. alix: where does this wind up leaving germany? they want to have closer ties to china and north korea is hanging over everything. max: germany has taken advantage of the america first policy. we are not expanding as much as we should. germany is taking advantage of all of that china is taking advantage of all that you -- that. we are about 37 minutes away from the jobs report and economists are forecasting 178 thousand jobs added this month. rate is 4.4%.nt

great for your time. thank you very much. think the weakness we saw in the may report may have been due to seasonal hiring, all of the summer hiring and seasonal workers. that could get shift the little bit past the may survey week. be june's gain. that's what we will see. we could see and above consensus. i think it could be closer to 195 possible. those temporary entrance into the workforce. that could mean we see a minor uptick in the employment rate. it is not something that will endure. there was a economist

born in new zealand. economy about the u.k. and unemployment. you know where i am going with us. something this meant to happen with inflation and wage growth. >> when we were talking about these issues, i said the philip's curb isn't rogan. it it's badly bent. as the phenomenon of this cycle. we should see more inflation. that does not mean the relationship is broken down. it means every cycle that changes. this is basically due to job insecurity. there is less unionization and more globalization. workers can't demand higher wages. they can be replaced by robots or foreign workers or computers.

and .1% increase in the unemployment rate did -- rate. alix: we've got full jobs coverage for you. we have bill gross and black rock. this is where we are stacked up in the markets before that important jobs number. equities are relatively flat. you can see some positive territory. overall, it's a stronger dollar on the day. the bond selloff takes a little bit of a breather. yields are back up by two basis points here in the u.s.. this is bloomberg. ♪

♪ jonathan: the global bond market

stabilizes after yesterday's rally. jeff gundlach sees more pain ahead, though. chancellor angela merkel says differences should not be painted over for the g-20. and it is payrolls friday in the u.s. for our york city viewers worldwide, good morning. you are watching "bloomberg daybreak." i am jonathan ferro alongside david westin and alix steel. just under 30 minutes away from the payroll report. treasuries high by two basis points. selloff, yields continue to grind higher. a weaker euro story. crude continues to roll over, this time by 2.5%. morningme for your brief. at the bottom of the hour, 8:30, we get june's payroll report.

then the fed will publish its monetary policy report to congress so locker -- so lawmakers can have the weekend to go over the report. at 1:00, the figure the crude market will be paying attention to -- baker hughes. interesting to see how it plays out today. david: now an update on headlines outside the business world. emma chandra is here. emma: in hamburg, protests resume before the start of the g-20 summit. police used water cannons to clear the block streets -- blocked streets. melania trump was unable to leave the play she was staying for security reasons. meanwhile, trump is being urged to get tough with vladimir putin when they meet later today. yesterday, trump said it could be russia's move metal, but it could be others -- it could be rashad that -- russia that

meddled, but it could be others. suspectia is the chief of a nuclear facility. this could eventually disrupt the u.s. powered it -- power supply. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am emma chandra. alix: love that slow-mo handshake. david: not sure who won. jonathan: that is a major obsession. alix: remember the macron one? jonathan: if that is the biggest take away from the g-7, i hope that is not the take away from the g-20. economists are forecasting

170,000 jobs added for this month. average hourly earnings are to 2% from last year. here to break it down, jim and alan leopold group krueger, princeton university professor of economics. let's start with you, your forecast? [laughter] part? who loves this alan: i was required by congress to do that. alix: are we going to see a continued weak? report? alan: i would not be surprised -- a continued weak report? surprised,ld not be considering our demographics, but june and may are difficult months because they are seasonal . there is a lot of hiring that takes place. the timing of when schools let out varies. i think these are months when

you may want to put in bigger confidence the normal. backdate --u have a >> three months is enough for me. jonathan: jim paulsen does not plate job as is with a three-month lag. what are you looking forward to? jim: i agree that the sustainable rate of employment growth is probably going to head down to the low hundred thousands or two -- towards 100,000 eventually. but i will flip the coin and say we will do something north of 200, maybe 210,000. we are coming off weaker than expected. we have had really strong adp reports. we also had a really great isn manufacturing employment balance in the month of june. we have had continued declines

in employment gains. whether that will come through this month, we are not sure, but i will bet on over. and theet me clear back white house. you're trying to figure out about the u.s. economy, what would cause numbers to go green or red? alan: a number over 200,000 would suggest maybe we are not moderating as much as the past six months have suggested. also stronger wage growth. we have been looking at labor force participation for a long time. it has pretty much been moving sideways the last two years. i think we are now far enough away from the drop we saw in the recession that demographics will take over when it comes to labor force participation. demographics mean we are getting older. so i suspect that will edge down a little bit, but you never know. economy will

strengthen enough to pull people back into the labor force. of thateen skeptical view, but that is the evidence i would look for if i were sitting in the executive office building now. david: one of the things we have but is an increase in jobs not as much of an increase in wages as we would expect. does thatntinues, encourage you, in terms of investment? --does like ev some pause does that give you some pause? jim: i think this recovery will end in the way most of them end, and that would be with some sort of overheat showing up in the economy finally. some show of inflation that forces bond vigilantes in the fed to take rates up in a bigger way in the recovery. eventually, that will be forthcoming. to that extent that we once upon flat or delay that -- that we want to pause that or delay that, investors cannot help but

like that. the concern would be if it does at 2.5%, but flat the entire job market starts to weaken considerably, that would be bad. i think wages will show in the second half of this year. i would not be surprised if, by the end of this year, we would have a year-over-year wage green -- wage gain of 3%. thatnk one of the things we are going to face is that the rate of job creation overall is is stillg, but demand going to stay -- demand growth might stay north of supply capabilities, and eventually, that will show up. alix: there is a theory that there is better wage growth than we give credit for. the atlanta fed, wage growth is the white line.

the blue line is the average hourly earnings. it is almost one percentage point higher. du by that story -- do you buy that story? alan: i think wage growth has been disappointing, it and i am very much of the view that jim espoused. that we would expect to see wages growing more. one thing highly late -- one thing i would highlight is real wages are growing, which, compared to the last 20 years, is strong. we need to change the mindset a and think of 3% wage growth, 3.5% wage growth with inflation at 2.5% as more normal. lots of different wage indicators. even if you use data from the atlanta fed, i think we are seeing slower nominal wage then we see the

employment rate at. demographics are also affecting wage growth. the fact that we get older workers, and older workers historically get lower wage growth. the fact that companies have more noncompete clauses -- even a company like mcdonald's restricts franchises from hiring workers away from other franchise mcdonald's. that is changing the environment when it comes to worker bargaining power. one of the reason we are seeing job openings grow and not wage growth, even in positions that do not require much skill. alix: how are you positioned the next 20 minutes into the jobs report? jim: we are not going to change for the jobs report. stay a littleo longer focused than that over the balance this year or over the next year. there is not going to be a lot that we are going to adjust

ahead of this report. after that, we will take account of the information and maybe make adjustments, but it will not change our outlook going in. i still think equity markets are going to have hired to go yet. i think we are going to see bond yields and the fed raise rates further in the balance of this year. jonathan: we come into the payroll reports. the same thing -- the most important one until the next one. but coming into this one, it feels like this one is not that important. do you feel that as well? from people you were speaking to, is that a feeling you have? jim: well, i get that feeling in of the number of jobs created is not nearly as important as it was earlier in this recovery, when we were hanging on a thread, seeing if we would actually exit the recession. i think it is important. the growing importance is on the

wage numbers, at this point. to me, the game changer in the balance of this recovery is when do we breach 3% inflation? a 10 yeareated mindset, if not longer, of 2% or less inflation. if we start getting indicators 3%, thath -- breach is a minded changer for wall street, investors. whated has to reassess they are doing and how fast they are exiting. months, thisix report will be very important, not so much for the jobs created as what it says for labor costs. david: alan krueger in jim paulsen will stay with us as we wait for the dobbs numbers. coming up, we will hear from bill gross from janus henderson after he will numbers are released. live from new york, this is bloomberg. ♪

♪ emma: this is "bloomberg daybreak." i am emma chandra. warren buffett is betting he will succeed in an energy takeover in texas. energizedto buy the energy holdings. berkshire will be the third company to ask texas regular this to approve the sale. samsung has posted its best quarterly profit ever. give the credit to global demand for semiconductors and the popularity of the company's new smartphone. that is your bloomberg business flash. david: thanks. the g-20 meetings beginning today promised to be one of the most eventful in recent memory.

leaders are in session now. there to cover it is bloomberg colleague matt miller. angela merkel started off with a statement saying let's not paper over whatever rifts there are. are they being papered over? matt: she is saying that officially, but the three main issues on the top of her agenda are trade, climate change, and immigration. these are three issues with which she disagrees completely with the stance of the u.s. administration and donald trump. it is important to point out angela merkel receives real bonus points from her electorate , and she has an election coming up in september, the more she opposes donald trump, the more she comes the antithesis to what donald trump is. david: when we had the g-7, in

italy, some people described it as the g-6+1. g-19+1, whoomes the benefits from that? matt: really, no one wants that to happen, with the exception of the kind of positive visuals they will get for their electorate, they are not helped by having the u.s. pull out of the paris climate accord and the global free trade situation. european leaders especially want the u.s. to come along. that is the balancing act they have to pull off. asy have to oppose trump solidly as they can for their base, but at the same time, they have to bring him along if they want to encourage the economic growth these meetings are meant to foster. on the issue of climate, it seems like they have already lost him. the cause of his meeting with putin at the same time as the

session on climate, he will miss out. david: thanks. with more, we turn to brussels and until you dan, -- with otilia dhand. take up especially on the role of russia, which is something you study. is there a possibility that trump could get putin to be an ally, at least on some of the issues they are discussing now? otilia: well, the agenda of these meetings is always set by sides. if we look at what the kremlin wants versus what the u.s. wants , it is quite unlikely that we would get any tangible outcomes from this meeting. the kremlin is looking for fulfillment of its -- a global power.

and particular things at hand for the kremlin are economic relations, e.u. cake, and -- the uk's, and syria. where we see a potential meeting point is on partial issues, such as the opening of new channels for military can vacation's -- communications in syria. more likely, it will be about setting the tone for future talks and decision-making on both sides, which will be determined by their domestic agendas. but these kind of framework meetings, as we see the first official meetings between the two presidents, is important. david: but at the very center of geographically, is ukraine. we had trump yesterday in poland

admonishing putin about what is going on in ukraine. there are sanctions by a lot of the countries meeting at the g-20 against russia. can they get anything out of the meeting without dealing with ukraine? otilia: nothing in terms of an ultimate resolution of the conflict or any sort of new deal on how to exit the crisis in eastern ukraine. what is more likely is a general discussion on where things are headed. also, this meeting will probably help the white house to formulate their own position on how to engage with the new that ares to sanctions making their way through the congress. it is also possible the white house will make up their mind on future support of ukraine, stepping up support of ukraine or relaxing it, on the basis of this meeting.

should the u.s. stepped up support, we should expect a response from russia. bigger picture, the personalities involved, i am intrigued how the following came to be -- how did chancellor angela merkel become the flag bearer for liberalism, when this individual voted against same-sex marriage a week ago. and how did the chinese resident become the flag bearer for free trade, when china is probably one of the biggest section is -- protectionist economies in the g-20 room? well it is not necessarily determined by the question of same-sex marriage, and there are a lot of other issues in terms of how to engage in world relations. how do we engage with humanitarian issues? that angelathing merkel decided to pick up as a personal role, when no one else

seemed willing to be the flag bearer. when it comes to china, china does have a strong domestic interest in supporting world trade. and as i said before, going into this meeting, we see a lot of positioning based on domestic interest rather than the global agenda. jonathan: otilia dhand, thank you. -- i find the whole thing very intriguing. coming up on this program, bill gross, janus henderson's fund manager. he will react to the payroll report that comes out in about a half minutes -- in about eight and a half minutes. ♪

♪ it has been a rough week for the bond market.

yields shooting high. sounded thelach alarm thursday, predict the more pain ahead for bonds -- predicting more pain ahead for bonds. ray dalio discussing the impact of the end of easy money, saying the direction of policy is reversing. our responsibility is to keep dancing, the closer to the exit. and jimus, alan krueger paulsen. global banks are worried about high risk tolerance, but that shakeup that has happened in treasuries, bunds, yields, what do you make of that? jim: i think we are turning the corner. this has been a bull market where the least risk assets have been some of the best performers throughout. trim therue in bonds,

stock market. but i think in the balance of the recovery, we are going to shift to where risk assets do better relative to risk averse. we are starting to see that here in the last year, where in the stock market, for example, the favorable dividend aristocrats have underperformed a fair amount. we are starting to see more cyclical sectors take leadership. growth andontinue if interest rates dominate in the balance of this recovery. i think that is what we are seeing and probably will deal with. jonathan: if you asked someone about yesterday's big move, they may pick a soft french auction. europeanou think the central bank has learned from 2013 and how likely are they to apply it? alan: first of all, these are

good problems to have. that means the economy is getting strong enough in europe that they can begin, -- to normalize. when we had the taper tantrum, things went back to normal fairly quickly. i think you want to send a long signal about what you want to do. i think it makes sense to err on the side of moving too late rather than moving to early -- too early. because you do not want to have to go back to these extraordinary measures. alix: i know you are constructive on equities, but if you were a risk parity investor of some sort, what do you do? jim: if that happens, it is kind of the classic definition of a broad bear market across most markets. you have to look at cash or commodities or something else -- alix: what is that not kind of what we are seeing?

when we had the huge still up in bonds -- fill up in bonds? couple daysalking a or a week in action. i do not think it is the trend going forward. we had a huge move in the 10 ofr yield in a short period time. rates may continue to go up, but maybe they policy. -- maybe they pause. and rates and equities are higher. if you look at policy, we have overplayed monetary policy so dramatically for so long that i think the federal reserve could raise rates and restrict their balance sheet a long time before people even notice. right now, we have raised the funds rate four times, yet the real funds rate is still negative. they could raise it again, and we would still be negative. is that really an oppressive

interest rate force? we are 10 percentage point above history. point in i think rates and stocks go higher before they do, a real challenge. inathan: we want to bring bloomberg's global macro strategist and we talk about high risk tolerance. is that why the market has not really moved despite hikes? >> they think what you're looking at is the fed raised , but it has gone up 50 basis points. gdp.10 year tends to parrot around 3%. gdp so the market looks at that incessant -- and says there is so far this can go.

alix: so what has happened is as higher, the yields dollar is a little higher. what will be the sustained yield market? vincent: you may not get it at all, because the data is getting pulled from the ecb. cignarella, alan krueger, and jim paulsen. we are waiting for their payrolls data. cross assets ahead of the jobs are poor this friday, futures unchanged. the dow up by two or three points. the s&p 500 up by 0.06%. the story of the bond market, what a week. we are up to basis point on the u.s. 10 year. two point 39%. the dollar showing -- 2.3 9%. the dollar showing strength.

0.11%.softer by the estimate you need to know is 178,000. the previous number of a 138,000. the print comes now from d.c. up 222 thousand in june. plus, net revisions to april and may had another 47,000 jobs. well over forecast. unemployment rises to 4.4%, largely because more people enter the labor force. the you six -- the u-6 rate up. bond guys, take note. the bad news is this does not do a lot for wages. up 2/10 on the month. tot takes the annual rate 2.5%, still under the 2.9% high we saw in december. later force participation rises to 2.8%. hours worked up.

where was the hiring? private sector jobs. 187,000. government hiring up by 35,000 on net, all at local governments. the most since last july. manufacturing added 1000 jobs. construction, 16,000. mining ads a thousand. alix steel's workers combat to the field -- come back to the field. retailers added 81 thousand jobs. the first gain since january. we talked yesterday about the home -- the need for home health care workers. 69,000 added. that is a field growing exponentially. jonathan: michael mckee, we will catch up with you a little later. let's get to the market reaction. at the number at 222,000. on a point -- unemployment goes up high to 4.4%.

the disappointing number is wage growth, coming in at 0.2%. numbervious month's revised lower as well. nowbids come in -- yields lower on the session. on the margin, we trade at 1. 39%. we want to get the thoughts from alan krueger. what do you take away so far? solid report.a it looks to me like the bond market is reacting to the wage number, which is a little weaker than maybe they had feared. if you look at the revisions, look at job growth, labor force participation, it is a solid growth. jonathan: encouragement on the participation rate? can: i do not think you take much out of the 1/10. i think the jury would be out on labor force participation. it is still down.

jonathan: alan krueger of princeton economics. high and wageakes growth comes in soft. i am pleased to say we can now cross over to bloomberg surveillance, where tom keene and david gura are standing by. welcome joining us, we william gross. i want to go over to the job market and the turmoil that the ideas we see higher wage growth. this looks like a yellen -friendly jobs report, a job support that allows the fed to raise interest rates. what will be the effect when the fed raises interest rates? bill: they have been raising interest rates. the effect begin -- depends on how much and when? i still think, despite this

rather strong jobs report from the standpoint of jobs gained and not necessarily from wages, wants, ishat yellen that the fed has one hike left in the year, probably in december. significantly on what other central banks do. if the ecb and boj and others tend to change their policies, ,hen the fed must, as a leader they have to be cognizant of what it might do to currency levels. they are all in a pot at the same time. the fed is important, but it is also important about other central banks around the world. tom: with what we have observed , it ist couple of weeks

the idea of a fed that is coordinated but at the same time constrained. centraldinated are the banks and how constrained is chair, because she is limited by other mobile activities -- is chair yellen, because she is limited by other global activities? bill: i do not think they are coordinated at all. there have been hints from the bank that they are on the move -- from the bank of england that they are on the move. but they are a far way back from when we stopped qe. so they are beginning to be coordinated from the standpoint of philosophy and direction, but not in timing. ultimately, that has a significant impact or will on currency levels. central banks want to keep those levels relatively static. each once to lower -- each once

lower theirs to currency, but they have to keep things steady. future coordination is important. david: we're seeing a race to declare the end of the bull market in bonds. what say you? was: my bear market level six months ago, so it is not really applicable anymore. it was at 2.65. i looked at the long-term trend since the early 1980's. interest rates on the 10 year have been falling 20 to 25 basis points since then. is that technical mumbo-jumbo? really not, because it is the indication of what an economy needs in order to keep going. ultimately, though we are at 2.66 isthe moment, and

a critical number -- do we get there in the next two weeks? probably not. increasead a 20 point thanks to the blinged taper -- to the bund taper. tom: for bloomberg television, i will show this chart -- for the first time in ages, i am showing bond price. the germany 10 year. down we go. looking at your munro trader, we are down about 3%. ower bondelds, l prices. when does it begin to her -- when does it begin to hurt? bill: it is the old teeter totter. pointsnders up about 30 -- when does it begin to hurt? marginns to hurt at the

here in the united states on mortgages. interest payments, as a percentage of corporate expenses, are significant by perhaps 30% to 40%. it begins to hurt lower yielding corporations, jump on bondrations -- junk corporations. and asrest rates rise interest rates and spreads widen, the hurt begins to spread to lower quality corporations. tom: how do you adapt within your portfolio at janus henderson to a higher rate environment? do you start rooting for the new york patriots? [laughter] bill: of course, the way to

adapt, if you are sure of higher interest rates and are assured of those rates would be higher than the forward yield curve, which is not much, then you go negative duration. the problem with negative duration, meaning short bonds, the carrier of a positive interest rate. investors have been reluctant to give up carry. it has been a carry trade. it is a function of interest rates and spread and risk-taking. going into negative is a difficult thing to do, because you need higher interest rates in order to justify your position. unconstrained fund has been negative by perhaps half a year, relative to the ability -- to the bogey.

what did you take away from the meeting last week? a lot of confusion concerning what mario draghi had to say. what was your take away? there was a lot of confusion. that is difficult. there is confusion with the fed, in terms of what they will do and the lack of quantitative easing, or buying back, selling treasuries. onhink draghi is focused containing volatility. i think other central bankers withinthe ecb, members the ecb, are focused on the negative aspects. so there are pluses and minuses. jonathan: bloomberg's tom keene and david gura speaking with will gross.

on that payrolls number at 222,000. unemployment back up to 4.4%. wage growth coming in softer on the month and the year. month on month coming in at 0.2%. the previous month revised lower as well. that is the story. coming up, rick rieder, black cio, and alex acosta, u.s. secretary of labor, will join the program. from new york am a we will speak with princeton's alan krueger. we will get into the detail in a moment. this is bloomberg. ♪

emma: this is "bloomberg daybreak." coming up, alex acosta, u.s. secretary of labor at 9:30 a.m. eastern time. ♪ jobs friday, the number coming into the upside. 222 thousand jobs created in june. the unemployment rate rises to 4.4%. average hourly earnings coming in at a lower consensus at 2.5%. here to break it down is jim paulsen of what held -- leuthold group and alan krueger of princeton. anything stand out to you on the downside? alan: still looks like a solid report.

35,000 jobs were added in government, but if you look at the revisions and hours, you look at the bump up in labor force participation, this is a solid report. i do not think it will cause the fed to change their plans. if it was planning on one hike later, it will still plan on a hike. think it is going to slow down their plans. alix: you actually called it, looking at 220,000. what is your take? jim: that was pure luck. [laughter] alix: good job. when it is all done and said, alan will be ready six months from now. ais is really at the surface goldilocks report by the stock market.

a run rate over 200,000 jobs. if you get any productivity at all, you're talking gdp north of 3%. that without any real inflation pressure, with no need to raise rates. that is a powerful combo for stocks. if there are fears about that rolling over, i think that, that down, from the equity standpoint. the problem i see is although that is great today, it does not move us away from the same issue we are going to be dealing with, and that is if we are producing over 200,000 jobs, closing in on a 4% unemployment rate, wages and price pressures will eventually show up. it will not bring bond yields down much, and it will not call the fed beyond -- it will not calm the fed beyond a short period of time. david: talk about these

inflation pressures, because we keep hearing about it, but we do not see it and we keep adding 200,000 people a month this late in the cycle, yet you did not have wages go up. about 2.5% or so, less than expected. where are these people coming from, and when do we run out of them? 2.5% will pull up inflation, because it is faster than the inflation rate now. as janet yellen said, you would ae wage growth around 3% in healthy market. one of the problems is productivity growth has been so weak. ,hat is another warning signal because i think we can tolerate and this kind of job growth is productivity growth were to pick up, because that means inflation pressures will not be that great. but we have not seen that yet. if you look at a range of wage

measures, they are pointing at around 2.5%. that is probably a more important measure for the fed then hourly wage data that comes with today's survey. today's survey is just more updated and current. i do not think this changes the picture all that much. in terms of where the workers are coming from, last month, there was a small blip up in labor force participation rate, but the month before, they were lowering it. i do not think we will see an environment where we are 200,000 jobs, that is not the average of the last three to six months. we also have the mindset of where the jobs gained is still enough to keep the unemployment rate steady or see it come down. when you talk about investments, particularly for companies, what does it do?

tothey have a pricing power increase prices that much or more to maintain or increase earnings? jim: i do not think so. one of the problems is we do not have much supply-side response left in this recovery. if we do not list -- lift productivity, and demographics will take us down to the low 100 , thatnds -- low 100,000's kind of job growth is at most 2%. then, you have profit margins that are pretty much maximized across the corporate sector. there's any pressure on labor cost, they have already used up the ability to widen margins. i think it will force margin erosion and force them to raise increased prices to try to keep up. supply situation, inflation is still an issue in the balance.

one quick point -- one thing that can complicate the fed isation and bond vigilantes if the dollar breaks south rather than north. in aollar index has been 30 month trading range, and we are close, the dxy index, to the lower end of that range. if it breaks below that range, it will gain a lot of attention and force commodity prices up, revived oil prices, put more pressure on costs, and make the fed equation more difficult. that is something investors should think about. of then: jim paulsen leuthold group. alan krueger, great to catch up with you as well. rick rieder, blackrock cio of total fixed income and alexander acosta, u.s. secretary of labor. you are watching bloomberg.

♪

♪ jonathan: an upside surprise for the june payroll report. the unemployment rate at 4.4%. 220,000 jobs added. joining us from princeton is -- date onme about the race and what it means for the federal reserve? >> even though wages were up a little bit year on year, month on month, they missed expectations. were is still this quandary have in the labor market, where we have very strong labor market with not a lot of inflation or wage pressures. the bond market, a really the numbers came out, focused on those numbers, where inflation breaks even.

that has been a trend you have seen over the last month or so, where you have seen lower inflation expectations but higher risk in what we call real yield. the about people want over inflation. that is stemming more from the , where the ecb has been pushing the bond market higher. it is not because inflation expectations are rising. jonathan: for the fed, is this a case of confirmation bias? believe the jobs economy is fine, this will tally that. does a change anything fundamentally? ira: not really. janet yellen has mentioned she is really looking at the aggregate improvement. they are worried they are behind the curve. they think because they are close, if not at, full employment, that is coming in the future. one of the things i did right after the number was look at the

aggregate paycheck of the economy. multiply the number of jobs created times hours worked times hourly wages. what you see is that trend has continued nicely from the end of the recession to present. changed, where job growth is leading instead of things like hours worked, but hours worked went up a little bit as well. that's certainly has to be something the fed will keep an eye on. alix: trade a few months ago was buy, why not come inflation will rise. what about now? ira: the market is not telling you it is going to be inflation. the question then is how does the market adjust to this environment where you have central banks getting incrementally more hawkish, whether the ecb or the federal reserve, and where you adjust from that. i think you get flatter curves.

that you get a big selloff in 10 year or 30 year yield is still early. ,t is really that central banks as they get more hawkish, you see front and yield start to rise -- front and -- front-end yields start to rise. there two-year will get higher. jonathan: great work. it thanks for giving your time. ira jersey of "bloomberg intelligence." coming up, joining us around the table, rick rieder, blackrock cio of global fixed income. ♪

jonathan: it's payrolls friday in the united states and payrolls come in at a strong

222,000 but wage growth disappoints. the global bond markets stabilizes after yesterday's route but there's more pain ahead for the bulls and it's one of the most highly anticipated -20 summits for years. good morning, good morning. this is "bloomberg daybreak." i'm jonathan ferro alongside david westin and alix steel. 30 minutes away from the opening bell. let's get you up to speed. deutsche bank calling it a risk on data and futures pushed higher. treasuries are up. and yields at 239. but a stronger dollar story lds in with the euro down by 1%. $1.14. let's go over to alix steel now with some movers premarket. alix: let's dig into the micro. john twitter .8 of 1%.

j.p. morgue says it's continuing to make positive product changes and does see more customer engagement that be likely raise at revenue in the future but the next two quarters will be dicey when it comes to those ad revenues and a potential deal or -- providing mobile cloud building. it's a customer service building for at&t and verizon. previously, they expressed an nterest. 35% of total revenue is verizon. and tesla getting a breert today. up by over 2% in premarket was hammered down 14% in the last two days on some negative comments out of goldman but they won a bid to build the world's largest battery in australia. and it's going to help the blackout plagued power grid. so some little bit of up news for tesla and after oversold at

14% in two days. the macrotaking front and center today. jonathan: let's get you an update on that payroll story. wages were the soft point. the headline number came in at 222,000. the forecast was 178,000. the print, 4.4%. the stimulate, 4.3%. -- estimate, 4.3%. for a look at what this means for the economy is gina of bloomberg. let's start with you, gina. the story for the federal reserve, encouragement for them to just carry on on autopilot? >> absolutely. this is a solid jobs print. i don't think they're going to be too concerned about the weak wage print because they saw this real nice pop-up in participation rate and for them, it's going to vindicate that they're pulling people off from

the sidelines and it's good news for the feds. jonathan: deutsche bank saying this is perfect risk on data. is this perfect risk op data? >> it's about as good as you can get. it's a decent average early numbers. unemployment rate very low. this is about as good as you can get for it. jonathan: if you had some question marks about the orthodox economic models, are those question marks still there? wage growth hangs in there the way it is? >> that's definitely the case although there is an interesting underlying detail in the jobs report and that is we saw a massive increase of people coming out of the labor market and into jobs. it is the biggest cost on record. and what that really says is there's a lot of shadow slack coming into the labor market and into jobs which might explain part of why the phillips curb isn't exerting itself. >> are we going to have to see

the fed lowering their target because of it? >> that's a good question. i mean, clearly, there is some sort of slack that isn't measured here. if you believe that ones you hit the natural unemployment rate, you're going to have to look and say they're still flack there. but if you're the ferksd you have to think about your unemployment level. david: the participation rate does not go up. you think that would be going up as you bring these people in from the sidelines. where are these sidelines located? >> the participation rate has been holding in as pretty steady pattern and what we've seen is that these people are moving from out of the labor force. so they're not participating to jobs and then getting jobs immediate limit they're not going through the unemployment process in between. so what we know is they're getting jobs very quickly once they start looking. david: was the market saved by the bell here? there's a big sell-off in treasuries and the fed says we

have a lot of jobs. does that save us all? >> it helps a love. we looked back at the 2013 temper tantrum this morning in a report because the market seems to be trading on oh, what's going to happen? bond yields are going higher? we've had a sell-off in the 10-year note. back in 2013, we had more than 100 basis point selloff and it created a lot of volatility and worry for in investors. but the one thing that saved was it reinflate expectations for economic growth going forward and that helped overcome the rising borg cost evident by increase. so this helps a lot. alix: earnings are going to off with j.p. morgue on friday. but my question was this that unit labor cost a month ago, we would have been having a conversation of what is going to happen with them? are we going to see an increase? is that still going to be the

conversation? ritter may be the conversation but it's not the reality. what usually happens cyclically is sales growth improves and that improves the labor costs and you see margins remain higher and higher and higher because that sales growth rate goes higher. they're passing it along. they're not spontaneously increase wages to keep them employed. so that's the environment that you would have to see in order for margins to contract. what we've seen over the last 20 years is margins on the s&p only contract when economic growth slows down. it's not a wage push. maybe this time is different. but i kind of doubt it. david: ok. thank you both very much for being here. it's not just the pay rolls numbers that the markets are focused on today. they're paying attention to the g-20 over there. we have matt miller who is

covering it. it's not just what the 20 heads of state are talking about together but the bilaterals the individual meetings. and i understand that president trump has just been meeting with the mexican president. >> yes, he has and the bilaterals are very important parts of these summits. interesting comments coming out of that meeting, trump saying the president is his good friend saying they are still negotiating nafta and of course, to expect the u.s. envoy come out with their negotiation demands. we're just talk with the canadian finance minister to see how his side feels those negotiations are going and trump also says he does still expect mexico to pay for the wall, the wall that he intends to build between the u.s. and mexico to keep immigrants -- illegal immigrants out of the country. so on the one hand, it seemed

like a friendly discussion that they had. -on-on the other hand, he still wants to keep that divide between the u.s. and mexico and put mexico with the bill so many imes mexico is not willing david: nafta's separate from that wall. one goes much more to security's perception of security of people come across the border and the other goes to economic matters. do you have a sense that the president may be moving forward the trade keeps going but turf appeal to my base on the people coming across the border? >> that's certainly how canada sees things shaping up. i mean, for example, the finance minister we're going to speak to in just about a half-hour's time, he just recently came back om steve manu new chin's wedding. -- manu chin's wedding.

canada has really been courting the trump administration, inviting ivanka to go to trudeau to a musical. they're hoping to be able to boost trade in north america. and the trump administration has made sounds that they may go along with that. as far as the wall, they're separate things. it's unlikely that any charge for the wall would be negotiated into the north american free trade agreement but i guess you ever know. alix: musical? david: he is invited to go along. jonathan: do you get a sense that they're doing some really serious work this time snarmed traditionally, you see a g-7, it looks like a photo op. but this time around, chance ler merkel opened up that sexument talked about not papering over the differences.

and you get the feelings that they've really got stuff to talk about and work to get done. >> yeah, i do. and i think when angela america says she doesn't want to paper over thes, that's a play to our -- the difference, that's a play to her base. and you get for example, statements like from the chinese president, the isolation of the u.s. has -- they want to fill. i talked to the russian sherpa yesterday and she said they have been working round the clock for

the last three days and will continue to. she didn't want to answer any questions on politics because she says there's so much work to get done as far as economic and financial policy is concerned. they're all working very hard behind the scenes. up next, rick rieder, blackrock's c.i.o. of global fixed income is here to talk about the bond markets. this is bloomberg. .

jonathan: an upside surprise on the headline number. and wage growth comes in co--- softer. ahead of the open, futures up about .2 of 1%. deutsche bank calling this the perfect report for risk. just a little bit of a push higher. if you get of the other screen, the bond markets. in the route coming into today. no signs of stability now. we're up by three basis points. 239. dollar strength kicking in too. the cable rate with soft u.k. data. dreadful to be honest. up by .6 of 1%. we're up by about a quarter of 1%. alix: back to the non-farm painkillers. the average hourly earnings at 2.5%. joined now by rick rieder, blackrock c.i.o. of global fixed

income. the market reacted. you had yields lower. and we reverse back to the trend. what did you make of that? rick: so i think there are a couple of things. i would argue for the long end of the interest rate market which i'm sure we'll talk about draghi and the e.c.b. talked about, it doesn't really do anything in terms of the feds rajectory. there's some structural reasons why that's taken place. three month moving average is 94,000 jobs. when you dissect this number, it continues to be this extraordinary transition of commerce in the world. it's professional health care services. you take in the total goods was about 9,000 jobs after construction.

point being you're moving this entire economy into such a different way which manifests itself in another unemployment report. alix: average hourly earnings were 2.5%. but if we're in the world where the services jobs are taking over, they're going to have a lower wage jobs. do we just need to forget that argument? rick: if you take year-on-year inflation, what's happening to that is 2.7%. goods is 0.47. .here are lower wage jobs we're hiring population's aging. education jobs, etc. it's just a shift of the economy in unbelievably rapid fashion. i think there's also something in wages that just doesn't get nearly as much attention. the way companies hire today versus 10 years ago, you think about the effective thinks like linkedin. it's efficiency of jobs.

we meyer consultants if we're taking on a project. we don't hire full-time necessarily. we can hire for reconsultant. it's a different framework. we reached a certain unemployment rate. wages don't have to accelerate nearly as quickly. there's a construct change that's affected 2.5% wage growth. david: just look at these numbers. the 1,000 jobs added in manufacturing. 59,000 added in home health care. it was more than a quarter of the total added jobs. but if you think about what you just said, you can't get the algorithm to go to somebody's home and take care of the elderly. is there a real shift in the value of these jobs in the sense of how much you get paid for them and all -- the low value things are going into people? rick: i think exactly as you said. there is the dynamic today. there are a certain number of

jobs that can't be rep indicated through technology today and you're seeing it manifest itself. there's one thing that's really important. when you look at the data around job openings or jobs hard to fill, it's extraordinaryly high which would normally suggest we're going to see a greater wage acceleration. but like you say, it doesn't happen because of the way the change is taken place and because our commerce is shifting so aggressively. jonathan: big shift in yields that we saw in the last 24 hours. is that technical or fundamental? we had broke some pretty big technical levels in yesterday's session. we know where the position is. a lot of longs have built up as well. are we starting to see a shake out of that? rick: it is exactly as you said. i think and i've said this on a recent call. we think and i've been on the show and i was bashful about it. if you go back three weeks ago, it didn't feel great. and draghi had just said in his

press conference that inflation was still not at the level that they need to reduce at the q.e.-. and you had no supply in europe. so it looked like you had to wait till the fall before you got any rate rise and all of a sudden, that meeting, central bankers that sat in a room together and what draghi's commentary is different it's changed the trajectory. we're going quickly to 275. yeah. we're going to get there. real rates in the world are wrong. they're just priced wrong. we're going to hit this quarter in europe. you may hit 3% plus growth in europe. u.s. is going to hit around a 3% growth rate. negative real rates is just priced wrong. so you're getting a fundamental appropriate repricing of particularly long end of the curve. the front end is not bad. the front end of the yield curve is pricing in at 60%.

that seems higher. right. ms jonathan: the words patience and prew dennis from in the e.c.b. they've got a lot of their. scheduling right out of the way. is that going to hold things up? alix: there are people who think and we've talked about on the show that you going to go higher on the rates. particularly the u.s. it's just not happening. it's what we would argue is an appropriate repricing. ebb and flow around this level before moving into the next 80 basis points we're not talking about a massive set of rate rises but it's more appropriate. i will say though that the change in terms of how quickly that happens has been surprising

to the markets. jonathan: you look happier than a couple of months. [laughter] rick: it's part of this central bank's been addressing. to have the vix sitting at nine is not right. that's why the financial conditions have become such a key. and that's the right thing to get normalized vol. david: and a happier rick rieder is a good thing. blackrock's rick rieder is going to be staying with us. coming up, we're going to have richard hyde with his perspective on this year's g-20 meetings. live from new york, this is bloomberg. ♪

jonathan: it has been a rough ride so far this week and henled is discussing the impact of the end of easy money in a note. he said the direction of policy reversion. our responsibility now is to

keep on dance but closer to the exit and with a sharp high on the tea leaves. to discuss, we're back with rick rieder. rick, we've had this conversation a few times on this program and i want you to weigh inch central bank as we're talking about reining risks and they're talking about high risk tolerance yet the market is shaking out the risk-free asset. why are we not talking about the riskier assets? the likes of high yields? why are we not seeing the shakeout there? rick: a couple of things. the fundamental principle in all the market is the world because of demographic evolutions. the word's need for income is extraordinary. that is your number one most important. however, we talked about around volley being so low. you're -- volatility being so low. you're seeing in so much the risk assets and fixed incomes.

but listen, we're still, if you track the amount of assets that are out there versus the amount that has to be purchased, it starts to change significantly when the e.c.b. starts to reduce q.e. it's when the fed starts to reduce the balance sheets. when people say central banks don't have to do anything, nflation is low. we're the top part of the capital stack is unbelievable, where people are willing to finance. what happens is it leverages builds in a system and so it's just wrong to say that it's just about inflation and i think the fed, you got to tip your not the fed. financial conditions are really big deal because they affect velocity in the system. they affect the way investment works.

jonathan: just to get my he around the concept of risk, central banks push people down down the industrial structure and across the curve. if they try to rein in that risk, are they going to go back up in quality? rick: if you're talking about today, it's a phenomenally good question. i'll give you an extreme. the european high yield market that's in the mid twos. you can buy the two-year treasury close at one and a half. you talk about -- if i can get cash or if i can get -- you start to think about what are thoses a sets worth? jonathan: rick rieder, up and about. you're watching bloomberg tv.

jonathan: from new york city from our viewers worldwide, you're watching "bloomberg daybreak." i'm jonathan ferro. about 21 seconds to go, futures are up by 27 points on the dow. p by 0.15% on the s&p 500.

yesterday, we grinds towards a second week of losses. as you hear the bell ring in new york, get to the other screen. here's the story in the bond market. treasuries, yield up at 2.38% on a u.s. 10 year. the dollar a little firm as well up to about a quarter of 1% as we go into the cash open. stocks expected to move massively higher at the open. and we move higher at the open as well. the s&p 500 up by a quarter of 1%. the doy up by a quarter as well. a moment to go, the president of the united states of america donald trump sat down with the mexican president, nieto. let's listen to what those two have to say. >> [speaking in spanish]

>> "in focus" -- speaking in spanish] >> thank you so much for the opportunity. thank you. >> thank you very much. jonathan: that was the president of the united states, president trump meeting with mexican president, pena nieto. full coverage of the summit on bloomberg. -- and et opening 1 alix, the bond market shift. captivated through the week and wait means for financials for a lot of people to have that big long financial story on 32017.

alix: this is yesterday's close. if you take a look, you are seeing a little bit of relief now. .he s&p up up we don't see a lot of falls through swhealing will that mean? we can get into the stocks. in terms of banks and tex. anks, a steeper yield curve. let's dig deeper in what we're seeing in the yield curve. it will clarify the optimism that we're seeing in the banking shares. the purple line is the financial sector and the yellow line is the spread and the white line is the 530 spread. financials have massively ahead f any curve.

jonathan: gina joins us in the studio. the story in financials. less about what's happened in the bond market, more about what happened on the back of the stress test. >> yeah. jonathan: is this the helping hand that they really need in the bond market? >> it's a little bit of both because the entire financial sector has rallied. normally, you would see the life insurers pretty sensitive and they haven't been as sensitive as the banks. it's a combination of the 10 year rising and the results eing positive. now what i think you look forward is to we have jpmorgan's release next friday. and in six of the last eight

earnings seasons, financials have outperformed the index. so normally, you get a little earning at the start. unfortunately, the rest of the eason you get a problem. jonathan: what was that expectation? guidance? gina: frankly, negative guidance has been the story of preearnings season for many, many quarters. i think that there was an environment where you had extremely low volatility in the second quarter. you had very limited movement, especially in fixed income prices. but how much is that going to contribute to second quarter earnings is a huge question mark. jonathan: back to floor seven or eight or something like that? gina: yeah.

jonathan: rick rieder of blackrock will be staying with us. we'll get you some g-20 coverage in a moment. let's continue the conversation on payrolls now with david. david: the new secretary of labor has devoted his career to employment issues. a as a lawyer with a prominent firm in washington, d.c. and as a member of the national relations board as the dean of the florida international university school of law. he joins us now from washington. welcome to the program. i'm happy to welcome you for the first time, secretary costa. good to have you here. >> good morning, david. david: jobs there is a very big deal. so let me just ask you what's your take on these numbers that we just got out a short time ago? >> this month, we've seen robust job growth. we added more than 220 jobs in the past month and we saw revision of about 50,000 jobs for april and pay. david: what's left to be done?

alexander: this month, we saw a slight up take in the jobs participation rate. we need get more americans back to work. some americans are opting not to join the labor force and it's very important that we make it attractive for them to join the labor force, to look for work and to work. another really important figure that we saw is that there's still a little bit of slack in the economy. if you look the number of americans that are working part time but would like to work full time, it's still slightly above the prerecession level and that's important because as we approach full employment, it's important to know how much slack we have and we do have slack for further growth. david: one of the things that we talk about here is what's going on with wage pressure. the wages are growing about 2.5% over the last month that annual rate which is better than the rate of inflation but it's not hat most economyists expect. what accounts for that?

alexander: it's a moderate wage growth. it doesn't show that we've reached full employment. it shows that there is room for slack, and there is room for further growth in the economy. and so the good news there is that we're not facing the inflation that you would as the economy reaches full employment. but, you know, we also have to make sure that we grow the jobs in the areas that pay well and that really have an impact in american families. david: areas that pay well but where we have the skills necessary for it. something that we've been reporting this week with our colleague in boston is the skills gap which i know is something you've been focused op as well. how do you assess that problem in the united states job market today? alexander: that's one of the largest problems we faced. there are six million job openings in the economy and that's a record number. and as i talked with businesses around the cubs, small businesses, large businesses, they say we want to hire.

but the individuals that are applying don't have and haven't had an opportunity to obtain the skills that we're looking for. and so we need to work with the educational institutions, you know, a few weeks ago, president trump signed an apprenticeship executive order saying we need to have more apprenticeships that teach real skills, skills that get people jobs. >> what is the role of the federal government as opposed to local government and private sector in adopting those skills? the c.e.o. of apple tim cook suggested the president we require nationwide all public school children to learn coding. is that the sort of idea that makes sense? alexander: certainly, the k through 12 educational system needs to focus on the type of education that leads to real jobs. but the exciting part about the apprenticeship program that we're spearheading in the department of labor is that industry is willing to pay for

individuals to acquire these skills. you know, i'll use the building trades as an example where the building trades invest nearly $1 billion a year teaching individuals the skills that they need to join the building trade, carpentry, plumbing, pipe fitting. and, you know, but this isn't limited to the building trades. just a week ago, i was talking to an individual whose a leader in the pharmaceutical industry saying that if you look at pharmacy technicians and pharmacists, the retail end of pharmaceuticals, that they also would benefit from apprenticeship programs. so presence ship -- apprenticeship programs will be tapered by industries. they need to grow in order to hire. david: who gets paid overtime? time and a half? the obama administration put out

a regulation that says anybody over $24,000 a year got that. it was challenged in the courts and then the department of justice said you're taking a fresh look at that even in your confirmation hearing, you said there were some questions whether $24,000 was the right number or maybe it shouldn't be salaries at all. where is that that review at this point? alexander: well, the prior rule had a different base number than the one that you mentioned. but to answer your question, we are taking a fresh look at that. we put out what's called a request information, a document where we're asking the public to comment that document is pending at what we call o.m.b. and it would eventually be public method federal register. the number hasn't changed for a number of years. and it's got more expensive. so the salary level does need to change in my opinion. what that salary level should be is an open question and one that we would like public comment on.

and in the next several days, that will be published in the federal register and hopefully businesses, trade associations, citizens, unions can all comment so we can set it at the right level. david: the president said he wants to be the greatest jobs creator of all time. given how well we're doing in the economy, why do we need fiscal stimulus? do we really need more? alexander: we have the ability to grow. if you look at the labor force participation rate t still not as high as it could be. so the president has said he wants to be in the greatest jobs creator. he will be the greatest jobs creator. and i think if you ask american families, you know, should we be doing more, they would say yes, we should be doing more because job creation and wage growth has a real impact on americans and american families. david: thank you so much. that's alexander costa. -- acosta.

jonathan: the perfect report for risk and that's what you're seeing in the market right now. the jobs report folding over in the s&p market. we move up by a quarter of 1% of the dow and we erase so much the losses on the s&p 500. up by a third of 1% on the session so far from new york city for our audience worldwide, you're watching bloomberg. ♪

>> here the greenroom. coming up, a conversation about north korea with former u.s. ambassador, at 10:30 a.m. eastern time. ♪

david: as the g-20 unfolds in hamburg even as we speak, we turn to the man who knows foreign relations like few others. he is richard haass. a former senior diplomat in the states department serving both republican and democratic president and the author of 12 books. most recently, "the world in disarray" now made into a documentary on hbo on july 2 1. welcome to the program. what are you expecting to see come out of this g-20? richard: not a whole lot. it's more important than the meeting is the side meetings and the con texas. they get hijacked by the issue du jour. a lot of conversations about donald trump. people are going to figure out how get a handle on him. some push on trade, concerns about cain or the middle east or what have you -- ukraine or the

middle east but i don't think there's a major theme. david: we're waiting for president trump to meet with president putt-putt. -- vladimir putin. he said we are going to renegotiate nafta and we want him to pay for the wall. is that progress? [laughter] richard: what -- no, it's not progress but they didn't toss out nafta what they did to t.p.p. the question is whether the negotiation is constructive and you're seeing a lot of american central and agricultural just making it a constructive renegotiation and there's legitimate need to renegotiate it. so, again, it depends on that. the wall issue and payment. they can get around it. some kind of a user fee. trucks and cars going across, they could pay a security tax and the wall could be paid for by mexicans coming into the

united states. so if they want to have a symbolic issue that excites the american base, then they can't. jonathan: rick rieder is with us as well. there's some significant conversations in there. how do you look at a g-20 at the oment of-in-germany? rick: i don't see saw said, north korea is hard to position around. there's no attention to it in terms of pricing and all of a sudden it does. the other thing that people are focused on whether it's around mexico and nafta, how does this all transition into trade and then where are we going with fiscal snoil it's hard to see anything coming out of that in terms of g-20 but there's where the -- that's where the market s looking. richard: so it's there and it doesn't have a big impact until

the way it has enormous impact and that's the way the gee political risk tends to work. jonathan: president trump won't give us his red lines for north korea. in the past, people look at this massive city called seoul and say military intervention is not an option at this point. but are we getting close to an inflection point to develop the military capability that is almost there where something needs to be done? richard: it's a blurry red line. the test means they're that much closer to it where they can meet nuclear warheads to reach the continental united states. there's only three options. you live wit. some combination of the deterrence of defense. you attack with it the rest of north korean retaliation or you try to negotiate. not to eliminate it. but to put some kind of a freeze or a cap or a ceiling and the question is will we try that approach? will we succeed? and that's where china come into the mix. david: you were saying that iran

and if an american president was saying to find out iran has nuclear capability, that has been pushed down the road? richard: there's a big difference. david: we had the former ambassador in beijing and i asked him has anybody changed north korea's course since the korean war and he said he ouldn't think of anything. richard: the short answer is no. they've been advancing for two or three decades on their conventional military programs. and people haven't focused on it the north koreans are trying to distance. the price of oil doubled because they took it off the market and they're going to build the equivalent of a strategic petroleum reserve because they want to insulate themselves from chinese pressure. they want to diversify like russia. the first time people in north

korea can have salary differentiation. they're doing better the whole reason is to provide some cushion so they're not quite as vulnerable to the outside world. alix: i don't understand why markets don't price in geo political risk. they used to. what has changed? rick: every time you've tried to hedge against it t cost you money. so the do i nascar unless it's viewed as it's going to have a significant economic effect, it's going to have a tangible afraid effect, it's pretty hard to be put on a hedge and ultimately did you want create the significant evolution around the economy or trade. alix: is that why the interest rates are so low? so if you wind up seeing central banks pull back, does that change it? rick: more so. there's been no volatility in the system. just get as much income into the portfolio. i do think that markets will start tor -- korea's hard to hedge and we've looked at bunch of things whether it's the

currency. there are not a lot of ways -- but by the way, you got to watch where the well is. you can't do that big size. it's hard to hedge. so what ends up happening, you reduce your risk a bit into what is potentially these events and try not to hedge it. you haven't paid. whether there's iran, iraq or syria, you haven't gotten paid. jonathan: take this week as an example. this market is an incredibly difficult place to hedge in when it's a risk-free asset. isn't that a story as well? rick: it is a story. when the risk-free rate moves up, it is a discount rate on all assets, whether it's equities, it is the ultimate discount rate. the more it shifts up -- if we sit at 240 or 250, it's not that big of a deal. but if you watch, you accelerate faster. jonathan: when you say derisk, do you mean cash? rick: today, cash is not that

bad. so yeah, you tend to bring down and go in more cash. david: richard, maybe more than anyone else, you've written on the subject between foreign policy and economic matters. as you look around the world, responding to what rick had to say, what is the gee political risk you think is connected with the market and business? richard: external risk is something out of the middle east. the prince of saudi arabia could get spouse a jam with iran. so if we're looking at geo political risk, i would say the meal. inside-out, i worry about potential our debt being a source of vulnerability and i worry about inaction. look at health care. look at infrastructure. you name it. look at taxes. what's not happening? and the question is one day, whether people to say wow, we thought this was going to happen. we cranked it into our models our projections.

we've got rethink our models. alix: richard, at the beginning when president trump was elected the war was trade war and from global growth. and then that went by the wayside. does that have to be rethought? richard: absolutely. it wouldn't stop there. it will be challenged in courts by american firms. it'll be challenged in the w.t.o. the really dangerous thing is the ghost of the w.t.o. and we say we're out of there. we no longer accept its ajude indication. that would be a big day which is so odd for this administration. how you have a growth agenda and you're getting rid of immigration and you're getting rid of trade? in many ways. those are two of your greatest growth engines. the right hand doesn't know that the left hand is doing here. >> we put together the week so far, all the conversation about risk and messy politics, the pay rolls reports was solid but we're still having this conversation about really messy

politics. and you have bridgewater essentially that's what he's addressing. but in the future, the next economic downturn, if you think the politics is bad now, how bad is the politics going to be in a couple of years? richard: it's like a slow motion crises. it's normal. it's normal and normal until you hit the thing point and then it's really abnormal and that's went you have big rather than modest correction. it's a question of when and not if. it could come when something tries to finally happen on tax or infrastructure and it fails and people wake up. wow. nothing's going to happen. david: rick, richard may obbling to this question. is that is slow-moving crisis or is this a matter of us who like to focus op geo politics? it's flashy and big when in fact, the global economy is doing better than it's doing in some time, right? even the united states, we have growth. we don't have runway inflation.

so maybe knots a crisis. rick: first of all, the north korea one is not a crisis. so that one is hard to understimulate. -- underestimate. when you go out a couple of years and you think about how deficits are growing and how the debt burden is growing, the risk -- you said are we going to hit a recession? pretty hard to envision as you said the data is pretty good. but some of the growth that's been front load today and particularly if you've got some sort of fiscal stimulus tax cut, you front load more of it. the implication of a recession who years out when the debt burden could grow, that is significant. today, i've said this on the show before, markets like to focus on the shark closest to the boat. we had a thunderstorm in rate this week. and over the last week and a half, that is a big one because that is a risk-free rate. but in terms of major events, there are not that many. david: the hardest thing to do in one word or, two if you're

going address leveraging around the world, what do you do? richard: cash. [laughter] david: cash? lix: that is one word. jonathan: richard haass, great to have you with us, alongside rick rieder of blackrock joining us on payrolls friday. right here from new york city, 26 minutes into the session. we open higher. we add to a little bit of risk in the market. the s&p 500 up by a third as well. for our viewers worldwide, thank you very much. the coverage continues right here. bloomberg markets is up next. this is bloomberg tv. ♪

♪ vonnie: breaking news, president trump sitting down right now with the russian ♪ vonnie: president in hamburg, germany. it is a bilateral meeting occurring at the 20 summit.

one of the most highly anticipated meetings of two heads of state in recent memory. from new york, i am vonnie quinn. live from london, i am mark barton. the meeting occurring amid andout from the election policy in syria and ukraine. at the meeting, the president accompanied by rex tillerson, while president clinton is in ispanied -- put accompanied by sergey lavrov. matt miller is in hamburg. matt, if i can start with you, what is the most that trump can expect to get out of the meeting, given both his domestic audience and international audience? uh, i think the most you can expect to get out of this is