tv Bloomberg Daybreak Americas Bloomberg October 5, 2018 7:00am-9:00am EDT
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the heat is on. numbers suggest the recent bond selloff, hiking above neutral. tech meltdown. since has the worst day june. china has chosen economic aggression. as relationship deteriorates mike pence accuses china of election meddling and being worse than russia. david: welcome to bloomberg daybreak: europe it is jobs day. -- bloomberg daybreak. mr. elon musk is back in the spotlight. , "the short seller enrichment commission is doing incredible work." he agreed not to do this. he goes after them on
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shortselling, which is the claim he was trying to beat the short-sellers with the week. you're supposed to have a communication officer that will approve tweets. maybe that person has not been hired yet. board beoint does the held responsible? david: there is real money involved. scc, at some point it will be directed at the board. he took a swipe at blackrock. he says, you guys are lending shares allowing short-sellers and at the same time making money on the index. alix: tweets response on twitter, hang in there, it will be ok, your long-term, does this make a difference? david: sec will find this amusing. alix: tech selloff yesterday,
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not funny. flat, off thewn, lows of the session. dow jones flipping into positive. ugly day in asia and europe. 1.15 is how we print. yields up to basis points, italy is getting hard -- two basis points. david: jobs day. 8:30 a.m. eastern time, payroll numbers for the month of september. will take, the senate up the nomination of brett kavanaugh or the supreme court in a procedural vote which should set up a final vote tomorrow. sunday, brazil, first round of votes in the presidential race with a runoff expected on october 28. right now, first take. lisa, let's start with the estimates.
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the consensus and then your number. consensus, 185,000 jobs added off last month. you are thinking lighter? carl: we were at 190,000 initially and after hurricane florence, we reduced by 15,000 based on the impact we have seen in past carolinas hurricanes. david: wages is what people will look at. carl: that is the key theme. it is not just the payroll change impacted by hurricanes. we have seen the impact on hours, watch for the average earnings numbers, wage pressure focus will be the key point for the markets, given the upward surprise we saw in prior reports and the tone in markets, that is setting up for a potential reaction. >> one thing i am curious about with respect to wages, it all
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comes down to wages. you are expecting 0.4% increase on pace for 2.9% year-over-year increase in wages. what is the threshold at which bonds fall out of bed further if we surprise to the upside? let's say 4.5% above consensus. at what point is it the other way around? maybe the economy is not growing that fast and wages are stagnant. let's go back to bonds. alix: there has to be downside. the rhetoric is there has been pricing in so much to the job market. the bond bears. lisa: perhaps. oil prices have been increasing, amazon is fighting political pressure to increase minimum wage. i don't know. the wages will be the interesting discussion. rateth unemployment plunging deeper into 3%
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territory, risk is going to be we get more wage inflation at some point. we will not see a stall out in wage pressure with an economy above trend, moving more convincingly beyond all estimates at the neutral level of unemployment rate. alix: the selloff in tech yesterday, the headline, was that it had to do with rising bond yields. total bs. that has nothing to do with tech. lisa: i do not totally agree. there was an alternative trade with bonds yielding so little, people went into stocks. you think a big technology companies, robust balance sheets and tons of cash, they offer a dividend income, people went in in response to their be a no alternative. bond yields, alternative, you can get 3% and a 10 year treasury. i agree, this is very much
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driven by the increasing tensions with china and a high likelihood that tech companies will rethink supply chains that could be costly, in addition to losing markets emerging and growing faster than the u.s. david: you got it. technical and sophisticated. people are getting nervous. because chinaades and the uncertainty around the world, i will go risk off. carl: it is also relative value trades. if you can get a good return in other markets --? remarkable indeed. bonds, yields are moving higher, i would guess by default stocks are moving lower and if you tell me trade tensions with china are increasing, i would assume that would be bad for chip, tech. alix: does this mean you are not grumpy muppets? lisa: oh we are.
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there is no connection. was out talking about china yesterday. this is part of what he had to say. >> beijing has mobilized covert actors, front groups and propaganda outlets to shift america perception of chinese policy. as a senior career member of our intelligence community told me this week, what the russians are doing pales in comparison to what china is doing across this country. david: the russians looking good compared to the chinese, according to the vice president. this is not going anywhere good anytime soon. lisa: this is scary. when i talk to people on radio and we talk about policy i raise the question -- we have seen frictions between warships in
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the south china sea between china and the u.s. how concerned are you that this tension could turn into a physical altercation? they said -- this is one of our biggest concerns. the rhetoric we are hearing goes beyond commerce and experts to imports. this will be structure of the relationship between the u.s. and china, especially the story bloomberg reported yesterday about the effort to spy on the united states. it just is feeling more tense from every level. david: geopolitics with a capital g. connect it to economics. carl: 100%. what we have seen with washing machine tariffs and us steel and aluminum, $50 billion on china and the additional $200 billion on that. that rhetoric is telling us, nafta negotiations have moved favorable, even with the
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europeans and other asian trading partners -- that is not the case with china. those comments tell me the 10% tariffs on $200 billion will reset the 25% at the end of the year and the threat of additional $267 billion of import subjected tariffs, across the board with china, is more likely as a result. alix: what does that mean for 2019? carl: the trade war -- that means more inflation for the u.s. and a reorientation of supply chains out of china and to other regions, maybe to the u.s. but also other regions, will continue. david: remember where we started monday with the new deal with canada and mexico. the president fixed it. maybe the same thing will happen with china? carl: or maybe they will redirect their sites to have a conflict with china. alix: bringing the sunshine. thanks guys.
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caused a jump in treasury yields, pushing the 10 year over 3.2%. pickup and volatility in the vix. equities stayed calm until yesterday. financials rally with higher yields, but so did utilities. google and netflix were hit hard. jpmorgan in asia, downgraded linobo. the selloff continues into europe. the losses pairing but a brutal five days for different asset classes. joining us on the phone savita , subramanian bofa merrill lynch us equity & quantitative strategy -- i said we have to get her on the phone. what do you do? savita: i like tech but not all tech. where you want to be within the yieldyare the cash rich,
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companies like software, higher-quality companies. with the rise in interest rates, i think growth of tech companies will be under pressure. we launched with underweight in communication services, a sector that includes the internet stocks. that is where i worry about macro headwind pressuring stocks with a free cost of capital for the last nine years. that is where i see risk. overweight old enterprise tech, underweight internet and growth tech. to the otherads us distinction in the market when it comes to large versus small cap. trade is rolling over and now it will be about leverage, earnings. savita: i agree. the other risk is not necessarily in larger companies that have locked in long dated
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fixed rate debt obligations, but smaller companies that have a higher percentage of floating rate risk and are sitting at or near all-time highs in terms of leverage ratios. oddly enough, this year, small-cap, only area of the market that has seen consistent multiple expansion. small caps, not necessarily pricing and risk, that is where i worry about more downside. david: talking tech, we hear about geopolitical risk, what is going on with the treasury 10 year yield. what about fundamentals? we will put a chart up that indicates profitability, earnings-per-share is trailing below what the market would support. savita: where we are now is peak growth rates. it is likely to slow from here. i don't think slowing growth is a reason to sell everything and head for the hills.
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generally market returns are healthy although less robust than during periods of accelerating growth rates. we are sitting at 20 plus percent growth, i do not think we will be that in the coming year. i don't think anybody does. what we want to do is look for healthy areas of the u.s. large-cap spectrum that offer a combination of solid balance sheets, maybe rising dividends rather than high dividends. you pointed out utilities sold off. another scary place to be in a market environment where rates are rising. alix: where are the places you want to be? financials. they did not get hurt on a flatter yield curve but could benefit from a steeper curve. savita: financials is a good place to be. the odd thing about financials is, it is weirdly high-quality sector today because it is cleaning up its act, total 180
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from the crisis. it is sitting on 1/8 of the leverage it had in 2007. it has a low payout ratio, room to increase dividends. by otherot be hit companies sitting at 100% payout ratios. financials is a good place to be. industrials, bigger companies reasonable dividend yields, i like aerospace, defense, analysts like that sector. areas of market that show quality, good balance sheets and a mix of growth and yield, that is where you want to be. david: savita subramanian always good to have you. thank you very much. u.s. pushback against beijing. how the latest remarks are adding to trade anxiety. live from new york, this is bloomberg. ♪
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♪ emma: this is "bloomberg daybreak," with your bloomberg business flash. tweetr tweak storm from, , hem from elon musk referred to the sec as the short seller. shares of cosco being hit. the wholesale membership workers weres trying to get access to financial data after they were to be cut off. the issue may not be resolved for a year. mike pence has called on google to quit developing an app that will strengthen communist party
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censorship in china. he says it will compromise the privacy of customers doing business in china. that is your bloomberg business flash. david: tensions with china on the rise. in the bloomberg report on chip hacking, escalating trade tensions could challenge chinese growth. catherine mann -- citi research global chief economist downgrading the forecast. you took your numbers down. to what extent does that reflect tensions with china or overall trade problems? catherine: the u.s. economy is doing great. it is about more generally, china and the percolation of the slowing growth in china to the rest of the global economy. trade tensions exacerbated that. global value chains through china percolate more throughout
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the global economy. it is a combination of trade tension and the slowing in chinese growth that was already entrained because of their policies. david: how vulnerable is that chinese growth? 6.5%. is there a downside risk? they are still borrowing money to keep that growth going. catherine: we expected a slowdown because they were doing infrastructure cleanup and financial market cleanup. we expected slowdown. what really happened that exacerbated that infrastructure slowdown was the slowing of the rate of growth household consumption. in some sense we should not be surprised. there is equity destruction, housing prices turned over, concerns of unemployment. households arens more concerned and they will not spend as much. that was already entrained. then we add the train tensions -- trade tensions. david: they have been on
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holiday. the central bank has not been in the position to intervene. do we expect that the reverse come monday? is that now part of policy? yuan helpsthe weaker on the trade side but not so much. they integrate a lot of imported components. that is the thing about global value chains. weaker yuan tends to raise cost. the other thing about weaker yuan is dollar debt. china, itporate in will be more expensive. there is a balancing act that the pboc has to address. it is the one area of china's policy set that is on hold. they have a tremendous amount of fiscal effort going on, both
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household consumption tax changes, which were rolled out this week in order to enhance likelihood people would spend tax cuts, and so, pboc has been on hold. given the slowing in china and the rising u.s. policy rates over the next 12 months, likelihood is that yuan smashes through 7. do you agree? catherine: we have to remember, dollarnot just a yuan- exchange rate that matters for the competitive. they sell half to europe. half and half, u.s. and europe. dollar,uan against the stronger against the euro. it balances out on a trade weighted basis. they have to worry on the other hand about borrowing, which tends to be in dollars.
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if you have to trade competitiveness versus concerns about financial side, that tends to put a break on whether it will go through seven. david: how big is this for president xi jinping? he has a lot of issues. one belt, one road, the growth of the consumer, issues of people moving from the west. is this a major issue and could this distract him on other things? catherine: one of the things that was the objective of the plans was to move more toward consumption. if we are looking for solar linings,- -- silver trade war tends to push in that direction. so you doaller pie not want to proceed along the direction of a trade war to achieve domestically oriented economic growth but in terms of
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our expectations for global growth, if we have the 25% on a $200 billion, and that seems to be in the cards, back to take a percentage point off gdp growth in china and that would translate into 30 basis points off global growth. global growth running at 3.3%, that is material risk. alix: sticking with us. just over one hour until the september jobs report. the numbers prove the bond bears right. this is bloomberg. ♪
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day in six months. european stocks on the back foot, tech no surprise leading the way in europe. the vix got a bid but now softer, 2/10 of 1%. higher bond yields percolate markets. tug-of-war between euro-dollar. 1.15 is how we print. sell italy. yields up seven basis points, over worries about growth estimates. the curve steeper. 31 basis points. what do you do? brent off 3/10 of 1%. david: emma chandra, first world news. emma: the senate is preparing for make or break on brett kavanaugh. republican holdouts, jeff flake
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fbisusan collins say a investigation appears to be thorough. brett kavanaugh says in a wall street journal article that he may have been too emotional at the senate hearing. mike pompeo will be lacking leverage returning to north korea for a meeting with kim jong-un. the push for nuclear disarmament has been undermined by calls percent in release and my president trump's desire for another summit. nadia is a victim of war crimes and there is another victim in the democratic republic of congo. they are being honored for trying to end domestic violence. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra, this is bloomberg. thanks.
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one of the most important developments has been the rise in the yield for tenure treasuries. the backdrop of federal reserve members speaking out. >> interest rates are still accommodative but we are moving to a place where they will be neutral, not restraining the economy. we may go past neutral but we are a long way from neutral at this point. >> i have not seen acceleration of inflation yet. we still see good job numbers. i do not think there is a rush. we do not have to rush the normalization process back to neutral. hikes this year, that would indicate one more. i am comfortable with the expected path embedded. david: still with us catherine , mann -- where are you on this? catherine: the issue is, normalization of monetary policy away from qe requires two
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things. higher policy rate, in order to make it expensive to take bad debt. qe was to push out risk out of the system. pushing out policy rates, pushes risk back into the system by making a pricier. the second piece of normalization, is to have a durable increase in inflation up to 2% in a durable way and have that priced into longer-term treasuries. two things have to happen. there is only one instrument. the one additional thing is time. how long do they wait and how quickly do they move policy rates? alix: what is your base case for rate hikes? catherine: four more over the next year. we have a big discussion within our institution about whether or not december is the necessary to go. whether or not there is time to wait to evaluate incoming data
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with regard to inflation. at this point we do not have a durable increase in inflation up to 2% objective. we have not gone through 2% objective in order to make up for all that time we were below 2%. the fed has been talking about symmetric objectives for quite some time. having more inflation in order to push 10 year yields up on inflation adjusted basis, that is an important these of normalization of monetary policy. -- peace of normalization of monetary policy. david: where do we end up in our economy? 3%, 3.25%t catherine: maybe higher. 3.5% is not bad. david: what does that do to the economy? catherine: we need to think
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about ramifications of 3.5% in financial markets. there is a constellation of asset prices, housing, exchange risk, credit risk, term this is predicated on low policy rates, low 10 year yield. as those move up, occur, then you have constellations breaking apart. we are seeing that in the last couple days. that is a financial market affect. does it pass through to the real economy? maybe not. we can look at uncertainty about business investment and distinguish between firms that are not exposed to financial markets much. they do not borrow. they have a tax-cut. free cash flow. experiencing a robust economy. they may not care what carnage there is on wall street. alix: this week the conversation turned to how high the tenure can go but how quickly it will
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rerate. this is a weekly change. 14 basis point jump. if we get there faster does that had economic implications in a different way? catherine: financial markets tend to move quickly. it would be nice if it was moved to the equilibrium but we know that financial markets do not do that. the metaphor of ripping the band-aid off, it is better to let the moon he'll quickly or do you pull it off -- the wound heal quickly or do you pull it off quickly? the problem is we do not know what repricing assets means. we cannot get to that new constellation of asset prices in one jump because we do not know what that is. it has been 10 years. david: real economy -- capital investment. what about housing? such an important part of the
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economy. 3.5% it affects mortgage applications. catherine: that has been soft. most, the view is it is not so much interest-rate exposure, but it is an inability to afford the down payment for a set of younger buyers, they are being priced out of the market partly because the people in the houses have been in there, starter homes, a lot longer. they're not willing to move. there is sticking us in the housing -- stickyness in the housing market. alix: we have not talked about the jobs number yet. i forgot. all right, jobs. what is the important number you are watching today? catherine: we have had good jobs numbers for a long time.
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one after another, good-looking numbers. our attention has moved to wages, in terms of average hourly earnings. not just the average of what we see across the spectrum -- where are the wage gains being felt and how my those in pushing through -- how might those be pushing through to prices? david: do we have to be more careful about wage numbers because of the hurricane? month there isy something else we have to be careful about when we analyze numbers. hurricane is a factor. you can start to isolate numbers by region and category of worker. that is the digging down you need to do in order to evaluate what numbers are telling us. alix: this is the pay rise we have seen. wages and salaries for private industry. we were talking about a
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generation that has started off on lower wages. inyou are getting paid different ways like bonuses, vacation time -- how does that complicate the economy and models as you are used to seeing them? catherine: if you're getting mayben non-cash terms, you care about that more. it is not cash. there is a lot in the economy that operates on cash. housing, for example. you need a down payment. cash. vacationve taken your or your nonwage elements in another way, we're going to have problems on the type of industries, consumer durables, discretionary, these might be things that would be affected by the changes in preferences on part of the younger generation. that means there will be other
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parts of the economy more successful. the last point is -- if people are more productive because they work in a way that they want to be working, that is great for the economy. david: are we measuring that productivity? growth comes from productivity. growth in terms of capital investment going down. is their productivity we are not measuring accurately? catherine: getting back to 3.5%, productivity is how productive capital and labor are together. if you do not have labor, you're more likely to buy capital to make your firm be able to be successful in a tight, high aggregate demand economy. we see that capital labor complement, and that is promoting. alix: we were talking about the structural change in how the
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younger generation is employed and how they are getting paid and if they are getting paid a low salary it is hard to come back on that. are we and a shift, that we will that we willift, be living with this for decades? atherine: looking at cohort, group that was born in the 50's, ors, 70's, the wage profile the household earning profile of those different generations is different. if you were born in the 1950's, you had increasing wages throughout your lifetime of work. if you are born in the 1970's, you have had a plateau in your real earnings. you will never recover. you won't. people and is, those their prime earning years, prime taxpaying years, those are the people that are paying for the pensions and health care of the old people and that creates a tension in terms of how we will do that, intergenerational
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daybreak," coming up in the next hour, the paycheck ceo. this is bloomberg. ♪ to your bloomberg business flash . toyota recalling more than 2 million hybrid cars including the previous. the problem is a software problem that could end up in a crash. -- including the prius. unilever has abandoned plans to leave the u.k. and consolidate headquarters in the netherlands. the plan was proposed earlier this year and opposition was growing. lockheed could face more problems with the most expensive weapon system ever.
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congress once to block the sale of weapons to turkey. but turkey could block manufacturing to lockheed. lockheeds the sale -- says the sale to turkey is on track for now. alix: a life of luxury. curating the selfie. forget the days of photo free museums. ooreconmics. fl blossoming. bedrooms, four fireplaces make this house week the most expensive in america -- this penthouse suite the most expensive in america. david: let's start with the selfies. some museums are changing the rules. >> remember when you would be
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afraid to take out a camera in a museum? now museums are realizing they are competing with the museum of ice cream. places where people are doing the marketing for them. they have to allow selfies and allow people to share pictures of themselves enjoying the art. rid -- in madrid, there are museums that still say no. london, people elbow things, it is not safe for the art. pizza, moma,eum of great. you are probably not going to go to the frick. david: no selfie sticks?
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it can happen easily. alix: flower economy. this talks about tracking economics in terms of how many flowers people are buying. floristrs around a star who does amazing arrangements for a lot of money. >> there are leading indicators for an economy. flowers are a coincident index. it is a luxury. if the economy is doing well, people spend money on flowers. $30 billion globally. david: a lot of it with jeff. annual budget, $7 million a year. the one wedding was $1.2 million in flowers. alix: if you are doing a kardashian wedding and spending millions of dollars on flowers, you are ok.
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david: texas a&m has a professor who is a professor of economics and horticulture. he says it is perfectly coincident. david: this guy is -- >> you have to start any hotel in paris, a budget of $1 million a year. this guy has created a culture of every wedding has to have a flower wall that you can instagram. alix: i did not know that was a thing. >> sorry. rides say that is the biggest thing in the wedding. that will be the event. flowers. forget the flower girl. alix: i don't know. ok. or you can buy a house. david: this is extraordinary. $75,000 asuite, night.
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they picked the number. expensive the most hotel in america. not the most in the world. there is a $87,000 a night one in geneva. suite itself is 10,000 square feet. it is they. it is bigger than the one in the plaza. david: it is booked. >> i don't know. david: some family took it for 16 months. alix: what!? >> the family lived there as an apartment. it will be more of an event space. david: put your $1 million worth of flowers. alix: if there is an exterior -- terrace. life of luxury. the point of the segment.
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one candidate is right of center and the other is from the workers party. they did not do so well with the economy. reale reports of come in, and stock market have gone up. alix: that seems counterintuitive. real. why would it be stronger? david: fascinating. one candidate got stabbed. his numbers went up. about what hed us would do with the economy. markets are liking him simply because he is not from the workers party. they know it will not be what it was, which was a disaster for markets. they want door number two. alix: whatever is not that. david: he is bringing back all
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policies such as capital controls. freeing up lending for poorer people. nice for the people but not good for the economy. alix: there was a great editorial these in bloomberg this morning, 85% of people say their country is on the wrong track and fewer than one in five expressed confidence in the government. the bigger question -- does the election change the stats? feel better about the economy or the right track? david: he is surrounded by people the markets like. there are questions about whether he will listen to them. hime was a fallout between and his finance minister. brazil spiking. they came back down but this is compared to south africa and turkey and argentina. alix: we talk about e.m. risk.
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argentina outpacing increase in cds, turkey as well. the yellow and purple. brazil is the white line. if you are going to have a risk off feel, he thought it would reverberate through every country but it has not. david: interesting. they have a lot of economy that can run. it is healthy. alix: they will sell soybeans to china for a nice premium. 30 minutes away from the september jobs report. this is bloomberg. ♪
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on jobs in the u.s., the destruction of hurricane florence and -- hurricanes aren't taking -- centerstage. as investors reprice the fed, they could re-hike above neutral, and vice president pence says that china has chosen the economics of aggression, china is accused of election meddling and being worse than russia. david: welcome to bloomberg daybreak. up,till have jobs coming and monday we started with -- alix: remember when the homeland after thing happened on monday. ? david: and we had theresa may dancing to dancing queen, remember that? in the meantime, the 10-year shot up, a lot has happened this week, it's been a full week.
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alix: and we still have the tech stocks from yesterday. markets, futures are flipping into the -- futures are unchanged, despite the tech selloff in asia, and spreading into europe but they are monitoring in the selloff now. euro-dollar has no big movement ahead of the john -- jobs number. ofthe u.s. you have yields 320, of two basis points. the dramatic thing is in italy, but that's an idiosyncratic story with their budget deficit and growth estimate. not sure on the numbers in italy, a big surprise. time now for the morning breeze. get:30 we are going to payroll numbers for the month of september, at 10:30 the senate is expected to take up the nomination of judge brett kavanaugh and a procedural vote
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which should have a final vote tomorrow. and on sunday brazil will have the first round of votes on the presidential race, a one-off vote on september 28. we are less than 30 minutes away from the september jobs reports, but the expectations are 185,000 additions to sales, 3.8 inmployment and a 2.8 gain average hourly earnings year-over-year. this is coming full force, joining us from princeton is alan krueger, former white house chief economist. and here we have subadra rajappa. predictions, on but to what extent do we have to take a grain of salt with these numbers because of the hurricane? i think the hurricane will have a relatively modest effect, it will probably not have any impact on payroll survey, because that covers the paper for which could be the whole
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month. also the hurricane hit a relatively low populated area. one thing to keep in mind with these numbers is that wage growth is very strong in september of 2017. that's one reason why we see weaker wage growth this month than last month, because it could change in the year-over-year number. alix: what kind of number do we need to see to justify the bonds of selling that we saw? >> on the unemployment fund we continue to see job creation and growth, on this month they will moderate on the earnings aside -- earnings side. unless you see something really exciting in the headline, or a pickup in wages, i think it will stay in this range until we get more of a jump where bond yields should move going forward. alix: you are at the front end
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of -- when we saw you last? what is your trade now? actually shorts bond -- short bonds in general. this time it's different. we see few catalysts coming into , it had to do with fundamentals being strong, and tracking at 2% consistently. and you're starting to see decent trends, and hawkish rhetoric coming from overseas. that should should jet -- that should suggest higher yields. so this time did feel different, and we had to a bearish outlook on treasuries. david: we haven't talked about myticipation rate, impression is that it is fairly stubborn, given where we are in the tightness of the job market. >> participation rate has been
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flat for the last five years, it bounced around between 62 point 7% and 63%. jay powell commented that what we have seen his labor force participation bouncing back for prime age workers and that has been upset by the aging of the workforce. i think we should expect aging to be a drag on the participation rate for the next decade, subtracting 2/10, or 3/10 of a percentage point per year. we are in a tug-of-war between some recovering labor force withcipation, and workers hiring, which is a win in the long run, because the participation rate for the prime age group was back where was before the recession started. david: we talked about the aging workforce, we read a report about people working longer, not retiring, partly because they have to. is that anecdotal?
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is it not showing up in the numbers? or is it showing that aging populations might really rate -- ameliorate? >> it is showing up in the numbers, older workers stay in the labor force longer but from a lower base. even of the participation rate may move up for 75-year-olds from 20 to 25%, the fact that we are getting more 75-year-olds in the participation rate is well below the average of the workforce as a whole and to drag overall. so if you look at the broader implications, the 10 year yield versus the premium, jobs will continue to hold up, the economy is good, jay powell says we are in an extraordinary economy, running a little hot, why hasn't the premium re-rated? >> to me what's really holding that term premium is what we call a goal -- global stock
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investment in central bank holdings. there's a lot of buying still , the cbcin your up continues to buy the they are tapering asset purchases, the bank of japan is still buying. with global stocks, this is what is keeping these quite low. alix: how does it involve? --evolve?all of the assetng purchases from the cbc could be a catalyst for higher term printing you him's, as well as supply. we are starting to see a lot more pressure in the brought -- the bond markets, which could be a catalyst to term premiums going higher. david: does that mean they might step up in january? would you expect them to see a step up?
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>> a temper tantrum of sorts? i think this has been so well telegraphed, and they are .ertainly dovish would want to avoid is increasing bond yields in a short period of time. it's delicate in making sure that the yield rises gradually. anid: take us in the mind of employer right now, as a look at this workforce, and they looking at ways to hire fewer employees? >> absolutely. they are looking to be clever, rather than raise the wage scale, give a bonus and one employee will bring in another. i'm hoping when amazon did will have a spill over to the rest of the economy and we see the wage floor rise. but it still seems with the unemployment rate below 4% we are seeing slow wage growth. is this a better thing in
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that you have real rates rising, but not as fast as we might if we saw a lot of wage pickup, is that more helpful for the economy ago how you view something like that? that's an excellent question and i ask myself that, that wage growth has been more restrained, that is probably giving the fed more headroom to move more , and allow the overall recovery to get stronger. i worry that it may cause them to have to accelerate the rate hikes. but you could debate whether it's a healthy sign that the curve is a little weaker than east to be -- then it used to be, that means the fed is network about taking the punch pull away so soon. alix: you disagree? that is what the fed chair powell alluded to in his speech earlier this week, in the
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process of trying to justify why they have the goldilocks narrative with inflation stock at 2% for the foreseeable future and growth moderating but not a .ig change in some respects, a gradual a stick approach to yield is a good thing. we gradually went from two and a and percent to 3% this year now we might be trading between three and three and a quarter. background verizon yields is the best thing for the market, you don't want -- that gradual rise in yields is the best thing for the market. both of you are sticking with us, coming up, amazon raising the minimum wage for its u.s. employees this week. will other companies follow suit? we will get insight from the paychecks ceo. this is bloomberg. .
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this is bloomberg daybreak, i have the business flash. a tweet storm from elon musk could cause problems for tesla. musk scent out tweets are getting the securities and exchange commission, he sarcastically referred to it as the short seller in richmond commission, which could imperil the deal he reached with sec sent overtaking tesla private, shares of cosco are being hit by information technology problems. tied to the problem is workers getting access to financial data after they should be cut off. there have been no breaches, but the issue may not be resolved for a year. aboutg has eased concerns
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a drop in demand for memory chips, the south korean country -- company posted a profit, but samsung is -- struggling to boost market sales. you.: thank looking for wage growth in the september jobs reports, markets will watch for continued wage games and whether it could support faster tightening by the fed. joining us now is marty mucci, ceo of paychex inc.. marty, we love talking to you because you have your finger on the pulse of the job market. what are you seeing out there in terms of numbers of jobs and wages? are saying,rowth we particularly in small businesses is about flat. bit, from last year. we expect that with the unemployment rate so low. from a wage growth standpoint it
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depends on the size of the company. when you think about small companies, which make up a lot of the economy, they are seeing , lot less wage increases employers with under five employees are seeing less than 2% wage increase, with larger companies giving more wage increases. david: does that mean smaller companies do not need to pay higher wages? or his or shortage of laborers that they need? think there is less turnover in smaller companies, but i think it's because they don't have the ability to do it. they did not get a big benefit from tax reforms. they are not as profitable as larger companies. as manynot raise prices times, they are smaller without as much flexibility to increase wages. earlier, alan krueger raised the specter of amazon and what they did with the $15 minimum wage. is that going to change your
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business or the business as you look at it yet --? --? -- it? >> it puts pressure on certain companies, those large companies employees that turnover quickly. i think it will put up the pressure on those companies. and i think it will put on that positive pressure to drive it up. but you are also seeing minimum wage increases across the state pushing towards $15 anyway and i think you have to watch out for amazon, are they taking away anything? like bonuses or other incentives ? and what's more important hourly employees? talk about amazon specifically, we will put a chart up that shows that retail average earnings lagged significantly overall in the economy and there has been a growing gap. >> that is the direction the
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economy has been moving, one concern is that large monopolistic companies like amazon could put downward pressure on wages affected the late -- affecting the labor market. for think the significant step that they raised the lowest wage. they also announced that they will lobby coming to change the federal minimum wage. stay minimum wages are changing but the federal minimum wage remains at seven dollars 25 -- statement and wages are changing but the settlement on wage still remains at seven dollars point ane cents an hour -- $7.25 hour. if you are still seeing a lot of employment taking place at that low minimum wage, which is not changed for nine years. employment,see the but the biggest employment growth is actually in those
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regions like the south where there have been fewer minimum wage increases. less pressure on those small businesses. allen west weather has been more minimum wage increases, phoenix, california, seattle, that employment has been slower in the growth rate. in those companies at least under 50 employees because of the pressure of the minimum wage increases. it's very regional from that standpoint. alix: you brought this up earlier saying that it's great, but they take something else away, if they were taking away bonuses, what effect does that have overall? it depends on how good the incentive is, when you're talking about hourly employees is usually more important for them to get the absolute wage rate. i think that's an important move for amazon and others that you see the pressure to raise the wage rates and take away those other things that could cause the balance to cost out.
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if i'm an hourly employee the certainty of my pay is more important. thed: you mentioned metropolis to content -- tendencies of some employers. break that down if you go to straight out wages as opposed to these other things, because it's harder to compete and compare one employer savings to another if it's extra days off for a little of this and a little of that. of the's right, one things employers has gotten better at is what we call price discrimination or wage discrimination, paying a different wage to different groups of workers and doing it in a way which is not so transparent. i think moving more towards the will hopefully raise wages more generally across the board. important to recognize that amazon hires a lot of part-time seasonal workers for the holidays. they typically do not get bonuses anyway.
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for them this is just an increase in their compensation. alix: alan you had a question? >> i was curious if you have been able to look at amazon reducing some of the bonus pay and stock incentives, how much of that is coming from higher paid workers and being redistributed to entry workers or lower wage workers versus how much is just coming just from low-wage workers? >> we haven't seen much detail on that for amazon, with exactly how they did that. typically what you see are fewer incentives on the lower end for those hourly wages because that's more important. and on the higher-end you see the incentives for salaried workers, and second -- and salaried workers are seeing a bigger wage increase, we see 3.4%, salaried workers are seeing 2% and under because of minimum wage increases and they
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really wore on talent for those workers. and what people don't mention is that while the rage -- wage rate is at two and a half percent we are seeing net pay above 5% for most employees because of tax reform. they are single most double the weight rating increase because of tax reform. david: one of the things alan has written about is the extent to which large employers have power over employees. what is the situation from your point of view if you take your business from the last five years has there been increasing concentration as there are fewer small businesses formed? or is it increasing? >> really since the recession we are back at the normal rate of new business startups. we are still seeing a lot of brand-new businesses start up, a few years to get back to the normalized level. but we are still seeing that.
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large businesses, we are certainly seeing more wage increases coming out of those large businesses because they can afford to do it because of tax reform and pricing power. they can also offer more benefit packages, which is pretty positive. away from the pain incentives, the benefits, health care, insurance, pingback student loans, those things are becoming more popular to balance out wage increases, particularly with war -- large companies. alix: always great to get your coming up, the dollar holding steady as the u.s. job reports gets breakdown. this is bloomberg. ♪
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payrolls and .2 on average hourly learnings, we think a hurricane effects will come to the and of p number, maybe better on the household survey, we have a big price on average earnings last month, and we have seen every time we have a big print like that there's typically a payback the next month, sometimes it can be as big as negative. that we are a .2, we think we are being aggressive. the dollar is generally the focus on, but the dollar yen rate has been married all week up until last night, yesterday the china news took it off the -- a little bit. alix: that's what i question, how long will be dollar take its cue after the job numbers? >> will probably be following rates take protect -- tick per tick.
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i think they're looking for a big number given the data. the risk is the disappointment, the low number, hurricane fueled, which may drag the dollar and dollar yen lower. and they may put on the back foot. we had a rising golden yield -- global yield across the board. how does the currency market take into effect where the rates are driving the entire? the dollar about rate differentials, relative to the euro, the yen, and anything else. it does argue for things like euro against the dollar lower. even though the rates are moving higher globally, the u.s. rate and differential are still pretty big and in favor of the dollar. rates are still rising for the dollar, which are rising for the u.s. and good for the dollar.
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there's a bullish set up in my view. many are saying we are in a dollar peak, so how high can make out? what will be the peak? >> we could see another 2% to 3% this quarter, nothing crazy, and maybe another 5% over the next couple of quarters? it will not be a crazy move higher, just a nice steady grind following what the fed is doing, with the extent we stay on course in the u.s. economy, that is probably what we will see. we will get some china influence on the negative side, and the market will show weakness and instability, adding to the dollar games. the one thing to keep an eye on his dollar funding around , and the dollar squeeze on the funding size. last year that helps the dollar into the fourth quarter that we saw a period weakness in q1
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after the phenomenon unwound did itself. alix: thank you, great to see you. subadra,s alan and when you take a look at global yields that are rising, which will be the most sensitive and where do we see them? u.s.,hink it is still the the u.s. will do the higher end in yields. the bond yields are still given howarily rich strong this is in europe. and in japan, because at the fact that they have a ban between -20 and 20, until they change that it's going to be in that range. it may even be at the high end of that range even there. alix: -- >> this widening is going to persist for a little longer than
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we think, until europe starts to catch up. things are quite different, you have risks associated with you neednd italy, and to see some stability for a rise in bond yields. that's what i think bondy -- what i think bond yields are more anchored. -- why i think bond yields are anchored. on there strong comments european economy, so things could go well. alix: the trade is at 31 basis points, will it stay there? think with the fed them play flatness is here to stay. alix: we are a few seconds away from the job number, s&p futures are flat on the day, nasdaq futures as well. we are picking up a little bit of steam, the dollar does not want to move anywhere, and yields continue to grind higher across the globe, particularly
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when it comes to italy. flatter, points are and the numbers are coming in in a few moments, and the expectation is for september we -- 21000-1000 jobs jobs. >> 134 thousand jobs added in some to ever, the unemployment ine fell from 3.9 to 3.7% september. economists have predicted -- 185 thousand jobs. average earnings rose eight cents -- eight cents. year that's up 73%. rateabor petition patient held steady at 7.2% and we got some revisions, we have payroll employment for july, revised up -- 47,000 255,000
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inre has been a lot made terms of whether or not the president's trade policies have any impact on these numbers, but manufacturing trended up at 18,000, reflecting again in durable goods. , andcane florence impacted whether the flooding in north and south carolina, economists have argued that there may be suppressed job growth, but he manufacturing the work week and to 40.8 hours. there is some holding steady in leisure and hospitality, employment has little changed over the month, and some of that might reflect the impact of hurricane florence. it.e you have the unemployment rate at 3.7%, the lowest in nearly five decades since 1969.
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david: thank you for reporting. mckee, us now is michael alan krueger of princeton is still with us as is subadra rajappa. disappointing? .> yes and no disappointing to a small extent because the numbers lower than expected. given the hurricane impact we can't really see is that out, but if you look at the revisions, both months revised down, so job growth is slower than we thought. still above the level in which we need to provide the jobs to people entering the labor force, so the feds will be fine with this, but wall street is going to be concerned. average hourly earnings not bad, but we are not seeing a big change on an ungrounded basis. -- it's notn by of
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exactly what you want to see when the economy is this strong, but hard to tease out the impact of the hurricane. aggregatek at annual hours, you may see a hurricane effect. spread is210 obviously moving flatter and s&p futures have just jumped a little higher, taking the wind out of the bond, there are some details moving lower with buying coming in. there was a lot priced in coming into this. two questions, is this disappointing? and is this a time where bad news is good news? the markets could give this a pass, because it's not clear what impact the hurricane had.
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i would view this as a full employment jobs report. the fact that labor force produced pay she rate, which fell quite a bit last month -- participation rate fell last month, and this month that job growth has moderated, that depends on the effect of the hurricane. it seems to me that this is the report that is consistent with the pretty close to full employment, and is going to reinforce the fed path for raising rates. that's the way i would read this. a get more input -- as more information about the impact of the hurricane, the household survey had a question about missing work because of weather, we will learn more about the impact, and maybe regionally whether that was greater in the southeast where the hurricane struck. that will give us some indication. alix: kicking into what you are reactionhe immediate was that was not good, by yields, we want this to go
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lower, too much is priced in. and now we see yields popping higher for the 210 spread -- two-ten spread. there's the momentary region or reaction and then and unemployment reality that could be taken into account. shorts goinglot of into the number, going with an upside trend, this is what you are seeing as an initial reaction. numbers, ast the alan pointed out, this is a you tend toe goes, see the headlining number from month-to-month, that's not necessarily a concern for me, the wage numbers are continuing to point in the right direction. for me this is a good number. 299,000 people are out of
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work because of bad weather, so that, it's pretty good. and one of the reasons unemployment went down is because the labor force declined quite a bit, maybe there were many people who could not get to work. david: i want him back to the participation rate, which is exactly where it was, it sticks right in there. i want to put this together with president trump and his agenda. he said it's not good enough, that i'm going to bring those people back in the workforce. should we give up on the notion? >> i don't think we should give up on it, i think it's critical for the future of the u.s. economy. i think president trump should raterst he exaggerated the , he looked at the number of people out, which is at an all-time high a few look at nonparticipants. asetter way to look at it
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the participation rate, which is down 3/10 of a percentage point over the last 12 months. i think we need to focus on how ,e raise participation particularly helping disabled workers get back to work, how to help workers with addiction problems get off of opioids or whatever medications they are addicted to? had we make the workforce more flexible to balance family, and jobs, and taking care of older family members and parents. those of the type of policies we need to raise the labor rate -- the participation labor rate? alix: i also wanted to point out the trade deficit, exports plunged 20%, i bring that in because part of the conversation coming into jobs was is q2 growth going to translate as q3 and q4? did we learn anything if we look at the trade gap and the job number today? it is important,
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it suggests that we are losing out because of the president's trade policy. but it's not as bad as it appears because a lot of the stuff that would have gone overseas is now sitting in warehouses and counselors inventory -- and counts as inventory. it did not have as big of an issue as you might expect. but long-term it will be an issue, governments will rationalize their issue is the trade gap continues to widen. is it less of an issue today than a week ago? because those things may have been heading to canada or mexico? probably not, the trade deficits of the u.s. and mexico will not be based on the trade agreements, because there were no trade tariffs when we had nafta in place. this makes it but it does not change it. is shooting year higher, we are at 3.21, what is going to be the short-term top?
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>> 25, i think it could be challenging to break through that, like i said earlier, it's easier for yields to gradually move higher, and you start seeing a sustained rise in yields. you can see this in equities, and other assets, because he will see it in dollar trends, and in moving markets connecting with conditions in general and start to tighten. i think our goldilocks scenario higher, staying range.three .0-3.25 and then with gradual yields we will move higher. david: i want to come back to the question of growth and houses sits in -- this is -- and how this fits in.
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how can we really have employment practices with long-term sustainable growth? >> it's not rocket science. we need to raise productivity growth, that requires more investment in research and peoplement, getting more through high school and post secondary education, raising human capital, and we need more workers. we can get more workers by raising the participation rate, or increasing immigration. i think in the long run, that's the recipe for raising growth. in the short run we are seeing the benefits from one half trillion dollar increase in the federal deficit, but that will sometime next year and we will see a return to 2% growth. raise a steady-state growth we need to work on the fundamentals of increasing labor force participation. alix: just to get the market
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reaction before we go, if we continue to see the jump in rate, are we going to see the trickle-down? i know you are a rate strategist but is it enough to shake what we are seeing? >> i think so. typically what you tend to see yield isnd 10 year when you start to see impact on equity markets. to me the spike in yield has been troubling, it could be a bit of a tantrum. alix: we really appreciate it, thank you so much. david? david: let's return to emma chandra, with first word news. >> the senate is preparing for a make or break vote on brett kavanaugh. two republican holdouts saying the fbi investigation of special misconduct claims against him
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appear to be thorough. flake says it is not back up the allegations. -- in ah says in an wall street journal article that he was too emotional in the hearing. victim -- thes a nobel committee honored two activist for their attempt to .nd sexual violence in the new york times is reporting allegations of sexual predation against harvey weinstein, several people have been accused of sexual and this is according to data compiled by bloomberg. hundreds have been fired, mostly men, many denied longed -- wrongdoing or questioned the credibility of their accusers. global news, 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists in more than 120 countries.
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clear,he reaction is you're going to sell bonds, stocks, and by the dollar. that's the job number you get -- buy the dollar. david: i'm not sure why, but that is the reaction. slowing, job growth is and earnings are coming in line. david: but it came and lighter than we anticipated, certainly with the number overall. and we have core economic saying it's going to be a 2.9. alix: and the trade deficit actually widened the most, exports have fallen but that has broader implications for trade and growth. david: the president will not like that i suspect. coming up, the white house responds to reports of china's chip hacks, calling it a high priority. we will speak with brett bruen,
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coming up in the next hour, larry kudlow, the national economic council director. this is bloomberg. ♪ >> now to your bloomberg business flash, unilever has ands to leave the u.s. k consolidated's in the netherlands. the plan was consolidated earlier this year. vice president mike pence has to to quitoogle
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developing an act which he said would send -- strengthen communist party censorship in china. he said it would compromise the privacy of customers doing business in china. there is a faceup between the u.s. and china as agent tech companies are in the middle -- asian tech companies are pushed in the middle. lenovo sells as much as 23% and is preparing for they did, they said not have business with supermicro, the company at the center of a hacking probe. david: government officials are also responding on the china chip hack, with the national security adviser saying that chinese threatens to effort -- chinese efforts to threaten us are high priority. they are establishing deterrence to prevent china, including offensive cyber other -- cyber
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offenses that the president has authorized. we are here with that -- brett bruen. were you surprised with the report? what was your it -- your reaction? not have been a surprise for the folks in the government or the private sector, but i think people have been a little money when it comes to china -- have been a totle naive when it comes china. not just from a technological but a strategy standpoint. canchallenges that we identify this is one vulnerability, but what we really need to get our head around is how china is developing strategies that are for u.s.pose risks companies and interests around the world and we have to be one step ahead. to mr.let's go back bolton statements, of
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establishing deterrence, is that realistic? >> i think so. with russia, china, iran, and other adversaries, it's necessary for the u.s. on the government side and i would also encourage companies to think in this respect. deter al ultimately cyberattack, or efforts to penetrate systems. it is important that companies in our government are thinking about this new battlefield in ways that are not just about defense, but also the ability to respond. the president has authorized this, how far along are we in the u.s. government to prepare those deterrence? >> in a lot of respects these are -- respects, these are early cyberspace has been developing a strategy over the last few years. when it comes to things like
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we are muchwarfare, less sophisticated and we have to get smart on that. china, wes not just heard from the vice president yesterday, comparing it to russia he said that china is much worse. take a listen. >> beijing has mobilized covert actors, and propaganda outlets to shift american perceptions of chinese policy. as a senior career member of our intelligence community told me this morning, what the russians are doing pales in comparison to what china is doing. david: is the vice president right? severalconflating elements. the chinese are involved in espionage, their efforts are widespread and sophisticated.
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however they are not weaponizing that information. they are working on long-term influence efforts that quite frankly pose far less of a danger in the short to medium-term to our democracy, the business community, then what russia, iran, and other groups of been engaged in. that is where we need to keep our focus. david: what do we need to do and what do we need that we are not doing now? we have a ranking member of the house intelligence committee saying congress needs to investigate this, do we need legislation? >> we legislation, resources, and a strategy. at this point we don't really , whether it's on a government level, and i would also exercise from a private sector standpoint, companies need to get more sophisticated ,hen it comes to supply chains protecting themselves in cyberspace, and on the information battlefield. i spent the last couple of days at a conference in washington,
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looking at this information. and this is a major threat that until now we are only starting to address in the government space. the private sector is at much as risk -- as much at risk if not more. david: so this is a chip that was put into a machine, and there's also software, can you rank which is more of a threat and harder to combat he echoed -- combat? >> the disinformation space is far more of a threat, even more so than cyber hacks. at the end of the day you can hack into a system, but the weaponization of information, the fabrication of information that comes out of that will be far more damaging. david: thank you for joining us. kohl's,ming up, hiring only at a-- employers few jobs, but treasury yields are continuing to climb. more on what i am watching. this is bloomberg.
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alix: i'm watching the bond market reaction to the job numbers, the numbers disappointed, the weakest in the year, but the unemployment rate has dropped to the lowest level since 1969, average hourly earnings coming in at 2.8%. what's interesting is that the fed tightening for 2019 has an upside, exactly popping higher, leading to more rate hikes, the question is why? the fullerestimating employment conversation during the job report? david: we might be. chairman powell did not indicate that he is putting the brakes on, and the market underpriced this. speaking to the details of
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the jobs are for, they said yes we have the weakest, but we saw upper revision debt -- revisions -- upward revisions about the narrative of the market recovering, so we will be watching this. david: it's the story of the week. up, the open with jonathan ferro, larry kudlow, the national economic council director, i wonder what he will think about these numbers. david: he will he happy. alix: this is bloomberg. ♪
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