traders are left guessing, why? investors versus the fed, again. markets almost ice out hikes. jay powell says the economy is strong. john numbers today. russia joins opec. can the country break the standoff between saudi arabia and iran? welcome to "bloomberg daybreak," on december 7. david westin has a much-deserved day off. interesting session involving. european stocks rebounding. lowest level yesterday since 2016. u.s. futures not participating. lower 15 points. we erased all gains for the year yesterday. flatware we were when jay powell came out where we were a week ago.

2-10 spread, two year yield fell 10 basis points yesterday. biggest drop in's may. crude has no idea where it will go until opec comes out. -- biggest drop since may. lisa. jobs expectations. gina, what is your forecast? >> they're expecting steady as she goes. no major change in outlook. market is nervous about this report. a lot hinging on wages. this will be key. if we can see the average hourly wage number stop increasing, it could be enough to ease market concerns that the fed will be forced into tightening at more persistent pace in 2019. we have gone from pricing in three hikes next year to one. there are whispers over the last couple days, maybe they won't do

december? we have to see easing inflation pressure. >> interesting. we are back to good news is bad news again. better news with respect to inflation, expecting 3.1% inflation rate, highest since 2009. if it is any higher, or meeting, especially because jay powell said, the labor market is strong by many measures. his last statement before the dark period before the december meeting. alix: let's pull that up. economy performing well overall, strong job creation and rising wage. by many measures, labor market is strong. much,rket is re-rated so anything the fed does will be more hawkish than what the market thinks. have they preempted themselves? >> in some ways. they are caught in an impossible situation. the employment report is caught

in the impossible situation. you have to see steady job growth to ease recession fears. not enough wage pressure to force the hand of the fed. it is a fine line. alix: bloomberg tv speaking to open."udlow at "the do not miss that at 9:30 a.m. eastern time. market reaction yesterday. straight up nasdaq. 3% move overall, peak to trough. no news to trigger. how do you explain? >> cta's. >> no. >> not. >> i don't think, i refuse to point the finger. what we are expressing is consistent with october, november. that comes as a shock because of where we were last week. last week we had the news from the fed.

the speech from powell, giving us all hope we would get this santa claus rally. we have had a good santa claus rally. it dismantled this week when the short end of the yield curve inverted. people freaked out about recession. you had fed speeches to suggest, hold on, we are not totally easing the brakes. the market is going through volatile scenario. it is not anything different this week than it was in october/november. 3% down day in october and november. peak to trough movements in index are not bigger today. the number of 52-week lows on the index is declining. things are not getting worse. it is just as bad as it has been. lisa: there has been a fundamental shift with respect to growth outlook. it has a lot to do with trade. the executive arrest was

significant. today we found out senior executives within the white house and beyond, new about this, while they were negotiating with xi jinping at g20. this is important. it indicates the sigh of relief we had with respect to postponing negotiations and having an easing for a bit, might be off the table. we don't even know what priorities are or who is negotiating or what one hand is doing with the other? fluctuationsassic but in the bond market, these were big moves. not only that. if you look at the breakevens, five-year breakevens, they dropped the most since june last year. one-day drop. inflation expectation over the next five years. this is a growth story. alix: interesting. the finance minister in france says, china and france must

and with.t. property, the vice premier. they are in it. he says, they are welcome in france. we will take it. third story. oil. indecision from opec. gina, volatility, hello oil. what is the bleed through from oil to other asset classes? gina: equities specifically, persistent and earnings. oil clearly the number one driver of energy sector. 500, market cap of s&p expected to be strongest grower in terms of earning on index over the coming year. negative revision already impacting the sector. it is catch up. this goes back. bond market volatility catching up to equity market volatility. energy stocks catching up in terms of revision momentum, to

what has been happening to the rest of the index, last three months. it did not express negative through october. alix: now $100 oil maybe. gina: this big drag we are expecting in terms of revision. unfortunately, not the drag it wasn't 2015. that is what everyone is referencing. energy will be this huge drag on the high-yield bond market, create a massive diminishment in expectation of earnings. if you think how big energy was into thousand 15, it is not the same -- in 2015, it is not the same story. it is still a drag. lisa: when you talk about high-yield bond market. yesterday, yields rose the most since april. all driven by spread, credit risk and perceived credit risk, not from rates. longer-term rates falling. this is indicative of oil story.

as much as growth story. stocks regain losses from earlier, not so much with high-yield bonds. energy is a big part. alix: great stuff. oil conversation throughout the next couple. you can find all charts we use on gtv , browse features and save charts. tom keene special, check it out, why not? coming up, more on expectations for the jobs report. what will reaction function be of the market? this is bloomberg. ♪

♪

is "bloomberg daybreak," and i have your bloomberg business flash. $5.2 billion in cash. one of the minority investors in the consortium is a billionaire founder. biggest ipo of the year. companyachusetts-based sold shares within market range. market value of $7.9 billion. howcompany is researching to make personalized vaccines. chrysler plans to build in detroit. plant will build a new version of the cherokee. 400 jobs may be created. alix: thanks. we are still waiting for some

kind of a decision from opec and russia. no surprise. they have not finalized the overall cut. the other thing we are watching, jay powell saying the labor market is peachy. the economy currently performed well overall with strong job --ation and gradually wising gradually rising wages. labor market is strong. look at what expectations are. a cut for 2020. move intorely any thousand 19. the journal hadn't -- in 2019. hunter and david, constance, who is right? constance: i have to admit that we were at five rate hikes from now. another one in december, four next year. we are considering we may need

to moderate. the real trick comes back. a broken record. three get productivity search next year? -- do we get productivity search next year? turnaround in housing? it has been negative each quarter this year. if we don't see turnaround in q4, that will be worrisome. jobs are a lagging indicator, or at best, coincident indicator. until deep't happen recession. jobs growth would be still strong. that has positive impact on economy. alix: jobless claims -- what do you think? david: the overall headline unemployment numbers staying low, but i agree with constance. the issue next year as far as broader economic signal is productivity. business sentiment has been dropping over the last 2 months.

i have no doubt it is related to the trade war issues. the fact is, they have a huge run-up with capex in q1 and q2. i would put the focus less on residential and more on the nonresidential fixed. that business spending so lacking during obama years, it was huge in q1, q2, collapsed in q3. if they cannot get that higher, they will not get gdp numbers they need. alix: is that worth a cut in 2020? are we setting the markets up for hawkish surprise? david: i don't think equity markets are looking. alix: you don't think it is about the yield curve in the fed? david: short-term. not 2020. fed fund futures, six quarters out, it has not been predictive over 10 years. alix: is the flattening on the short side justified? in version?

justified it would be based on global conditions. yieldsllback in 10 year is all about global conditions. we started this year with tailwind to growth globally, now we have headwind to growth globally. as a justified? yes. global markets are concerned. -- is it justified? how much inversion do we need to see that transferred into money multiplier in the u.s.? in the october survey, the lenders surveyed what the fed found was in commercial real estate, 42% of lenders said they would tighten standards if yield curve slightly inverted for cni loans, 19%. they would tighten lending standards if the yield curve is inverted. watching results of that survey, seeing those numbers pick up, is important. economics happen at the margin. even that slight shift is enough

to impact liquidity conditions throughout the economy. and that all-important investment component. david: completely agree. dollar liquidity is impacted. the dynamic is the way it will play out. is it justified? what the yield curve does is always justified, telling you what is happening. i do not believe the 2-10 will invert. it only inverts if they make a policy mistake. maybe this is hope, instead of real prediction but i believe the fed is seeing they have to backtrack. they hiked in december, differently guiding into 2019. alix: the data here is correcting. corrected yesterday. fed,arket telling the

monetary policy is too tight for the rest of the world instead of the u.s.? can you make that distinction? constance: seems plausible. cut into thousand 20, we would two a turnaround -- cut in 2020, we would need a turnaround global. a pause in 2019 is possible. the fed has never been able to engineer when it falls below. this is not to say they are not always improving and course correcting methodology. it is difficult. david: i am not so sure it makes sense that they would be cutting in 2020, based on futures in 2019. what is the efficacy of cutting before the neutral rate? ultimately they have to get the rate to where they believe it is neutral in the economy for a cut to have efficacy.

ultimately, that has been policy objective. to get it there. they were not quite able to get there by the time economy started going through twists and turns. the trade war is an issue. jim and powell cannot talk about it -- chairman powell cannot talk about it. it is not his job. surge, it surge, gdp would go back to this fear of overheating mode. alix: we want clarity. come on. constance and david, sticking with me. breaking news. all tria investing $1.8 billion kronos,40% stake in integrated cannabis company. 45% ownership in the cannabis company. these guys, cigarette companies are trying to find other ways to diversify.

juul up for investment from altria. kronos, interesting. do you like cannabis stocks? david: i did not. i would distinguish between the constellation brands getting into cannabis from cannabis stocks. stocks, underbelly of investable corruption. alix: wow! david: not reliable. this, you have credible business operators. it is not a cultural comment. it is not an industry i find interesting for what we do. alix: apple gets sliced. morgan stanley, after the wild ride. more on that. this is bloomberg. ♪

♪ alix: slicing the apple.

morgan stanley cutting price target, slashing on iphone sales. tech wasnteresting is, the index leading the charge yesterday, 3% move staggering. now you have tech overall down 1% over the last three days. david, dohunter and you like tech? david: we have adelia nation between old tech -- we have a delian nation between all tech a new tech. we put ibm in the list. names.ech than faang we do not like faang. we have not liked it all year. eight weeks we look good by not liking it. cash flow oriented investment, we like dividend yields and balance sheet, defensive

characteristics. you have attractive multiples with cisco and ibm. alix: late cycle? david: we are permanently attracted to less cyclical characteristics. alix: talk about late cycle. maybe we see a global leadership rotation? less about rotation in the u.s., but more global? is there a global market unidentified now, stronger than the rest? it was supposed to be europe 12 months ago. constance: it is definitely not happening in europe. possible, japan. it took a dip. it is turning around. i am hearing interesting things from investors looking at japan and finding equities to invest in. while the number of listed companies in u.s. is shrinking, japan is growing. investors, they are

finding interesting opportunities. that said, bank of japan has said they are limited to monetary policy we are pursuing. if we continue to pursue aggressively, it could have negative impact down the road as it causes too much leverage to be taken. japan has to run with out training wheels. if they can, that is a potential market. caveat. how tight it is to china. o things fore, tw 2019. recession watch. also, global risk. trade. what is going on in china? how is that impacting the region? japan is tied to that. that would be my caveat. david: let me add. 20 years as allocator in japan.

it was ripe. in august, 2017, we took a position. i agree. it is more interesting in corporate sector. not top-down call but companywide. 28% dividend payout ratio. united states is in the 40%. they need cash. 5 trillion yen on corporate balance sheets. they need to borrow money from capex for years. they have an incredible ability for corporate sector to increase profitability and payouts. japan bottom up has attractive elements. alix: if tech will not lead what is it? would you have that conversation about japan equities? david: not what sector leads? but what companies are the most viable. we are bottom up buyers. it is likely, u.s. sectors will

surprise people. i do not know if in japan it will be sectors that have traditionally been there. in the u.s., faang leadership is done. things depend on the trade war. industrials have gotten hit as a result of activity in the last seven weeks. they should be doing better than they are. consumer discretionary is not going to lead. faang is not going to lead. energy is undervalued. 6% of the s&p, how much can it lead? alix: we will get to that. coming up, deal or no deal. this is bloomberg. ♪ ♪ there's no place like home ♪

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mom. ♪ unstopand it's strengthenedting place, the by xfi pods,gateway. which plug in to extend the wifi even farther, past anything that stands in its way. ...well almost anything. leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. ♪ alix: happy jobs day. u.s. futures not participating in rally overseas. s&p erased the gains for the

year. softness heading into the jobs number, in one hour. s&p futures off 6/10 of 1%. despite industrial output dropping the same time wages rose. mixed dollar story. will the dollar gain traction either way from the jobs number? gains and losses muted depending on yields. u.k. 10 year yields up three basis points. selling on the margins. uncertain about brexit. maybe theresa may will ask for concessions? maybe there will not be about. -- be a vote. huge moves in the two-year, biggest intraday yesterday. 10 basis points. longest since may. watch that spread into the jobs number. brent over 1.5%.

deal or no deal from opec? we do not have details. update on headlines outside business. administration and canada made arrests. president did not know in advance. accusedhorities have him of violating u.s. sanctions on iran. theresa may may postpone the crucial vote on brexit to avoid a landslide defeat. this could put the u.k. on course for no deal in march. former u.s. attorney general william barr may come back for a second tour of duty.

he is the likely choice to replace jeff sessions as the nation's top law enforcement officer. twoas attorney general for years under president george h w bush. 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.. alix: thank you. opec ministers resume talks on cuts after yesterday ended with no deal. talks are deadlocked. i ran refusing to accept a symbolic outlook cut. brent trading above $60 a barrel, as russia joins. dan, such a pleasure. what is your base case? dan: the russians make a deal. they make a minor cut. the problem with the iranians is symbolic. the cut that would be attributed is a fraction of production

down. alix: they are under sanctions. why is it so important for saudi arabia to get them to agree to a cut. dan: it is the basic enmity between saudi arabia and iran. it is about prestige, position and numbers. alix: how clear do you expect the announcement to be? dan: there is always ambiguity. the market is expecting there has to be a deal. otherwise, we see this continuing weakness. the differences, russians and saudi's are playing chess with the numbers. you have this other party, third-party, the u.s., the wild west. alix: trump tweeting when meetings started. "keep prices low." fine line for saudi. they don't want to upset president trump.

things,re other penalties imposed. alix: yemen. dan: we think about opec. we are in a new oil world. the big three. russia, u.s. and saudi arabia. between the three, they have added 2.6 million barrels a day to global market. alix: is opec dead? dan: no. it has changed. alliance,is the russia and saudi arabia. that is a new element that was not there before and 2016. it is developing. alix: is that a good thing? dan: for them, it is about stability in market and reality. qatar has left.

we thought this was opec. be russiaseems to and saudi arabia, as the foundation. the saudi's have said we are not going to do this by ourselves. alix: what does the rest of opec feel? thisopec but then there is vienna alliance between opec, not opec. it reflects a changing reality in the market. it reflects changing reality geopolitics. the relationship between those countries is something new. alix: we see more countries leave? dan: qatar was specific. deep enmity, the blockade, the cold war. special case. oil, minor oil producer, they are huge l&g producer. that is the gain. alix: what is prices?

$50, 60 dealers, u.s. marginal shale supplier. does that the right story today? dan: at the beginning of october, $86. so much for stability. $80, $65 to $80 is a balance hard to achieve. companies over the last few weeks have been reviewing budgets, planning to cut back. in our numbers, we expect next year, the u.s. to add 1.5 million barrels a day. it will not do that at $50 a barrel. people will not be spending money at that level. $20 billion, spending on shale, $3.8 billion. dan: look at numbers. domestic, total capital budget, 40% roughly united states.

that shows you the degree to which money has come back from the rest of the world and investment is coming into u.s. majors reconfiguring portfolios to have greater emphasis on u.s. to bring supplies up. alix: the story is, 2019, huge bump from the market, capacity issue, shale rut ruling the way, then petering off. is the story changing? several million 2023,s a day, 2022, pipeline capacity. you get into arguments about what happens five years from now on shale. how much can it grow? became the, u.s.

number one oil producer. it overtook saudi arabia, russia. what a change. alix: will opec continue to be in this world where they have to keep cutting? dan: they are counting on growth. alix: they want it. dan: they want economic growth. a lot of different things are filtering the picture. concerns about global economy, trade disputes. what does this mean for growth next year? you can only fit so much supply into demand growth. 1.5 million barrels of day growth, next year, you deal with oversupply. alix: the u.s. can continue to grow next year. if the majors are pumping that much money, that is a different sustainable free cash flow environment. they have the balance sheet. opec might cut as a last resort?

you mean cutting? alix: [laughter] dan: the russians look at it. russians companies do not want to cut. production up. they make their money on volume. $25 a barrel, all the money goes to the russian government in tax. they want volume. they are saying, why should we make room for u.s. shale? that is the debate in moscow. the russian oil energy minister is in moscow meeting with the president coming back there. look at where they were in 2016, as opposed to now. russian oil revenues up 80% as a country. they have interest instability in market but they seem to be able to function at lower level on budget. alix: going into next year. supply and demand dynamic you are looking at? dan: continuing to deal with

oversupply. wild west growth in the united states, is something that will continue. alix: supply gap? dan: i do not see it, not with the volumes we are seeing. back to the question of what will happen to the global economy -- demand-side? so far, despite concerns, demand is holding up. alix: perfect pivot. thank you. good to see you. talking about global growth and demand. david and constance. global demand growth. what do you see? constance: you pivot back to the conversation we had. this low oil price is good for consumers. you see a stronger-than-expected holiday season as a result. it gets to this dichotomy of what is driving growth. the consumer has driven growth.

97 consecutive months of jobs growth. 98 today. investment has lagged. some investment we saw in the beginning of this year in u.s. was oil related in investment structure. we see lower prices. less likely to see investment pick up, there will be less oil investment. we are more likely to see consumer continuing to carry the torch. good for short-term. for long-term, we need more investment and productivity to drive economy. alix: talking free cash flow. tw months ago you are loving energy. free cash flow like crazy. david: still love it. the natural gas story has to be talked about. let me say, i cannot say how much i have enjoyed that interview. when we talk about that global growth story, where the oil

conversation comes in, the demand story, has to be understood in terms of global growth. to me, the trade war has to be settled before we know if we are talking about 2022 metrics. but, to her point on the business investment or consumer driving economic growth, i think you could get chinese consumption of lng buying from the u.s. to become a major u.s. infrastructure story driving business investment, not forcing us to rely on the consumer. alix: do you like oil stocks? david: we are commodity agnostic. 4%vron and exxon dropping when oil drops 30%. no high correlation. it does not work both ways. oil goes $50 to $70 and stocks don't move. they are operating in a different bug.

alix: completely right. such a pleasure. thank you. coming up, microsoft's secret weapon. the cfo featured on the list of the 50 most noteworthy people from this year. this is bloomberg. ♪

♪ emma: this is "bloomberg daybreak," i'm emma chandra. ceo.g up, snap on this is bloomberg. ♪ higher,onos trading 25% after altria makes investment in

the company. $1.8 billion stake in the company, 45% overall. altria gets a foothold in canada. cronos gaining 25%. businessweek beats. three must-read stories. bloomberg 50. amy hood, microsoft surpassing apple as the most valuable company. the secret weapon, longest-serving cfo. amy hood. the reboot. investors getting sick and tired of waiting for the turnaround. no refunds. a startup demise. crazy story. lured by the promise of traveling the world, customers woke up to a concerning email and harsh reality. joining me now, carol and dave.

a onees not want to work million our day on a friday? 50 most influential. amy hood. the three stories, the good the bad and the wait, what? everyone is doing these lists. amy hood has become the longest running cfo at microsoft. she has worked well. she has invigorated the company, making it a number one company for supplying cloud equipment. everyone is all in on cloud. market cap. so focused on amazon, apple. microsoft is beating them. data big-time. assessing customer base. >> one of many fascinating people. the market cap discussion.

guess what used to be the largest? general electric. alix: see how we did that? let's talk. huge conglomerate. how can it survive? >> real live existential questions. we had a chance to catch up with beth comstock, former vice chair. investors are saying, this company is worth something, something meaningful, because of assets. areproblem is, they probably going to have to selloff the crown jewels just to bolster the company. larry has a huge task. >> your selling off assets. reducing cash flow. exposure in ge capital, they have gotten rid of cash flow supporting dividends. that is down to one penny per

share. alix: they will get out, take a loss. you take a huge write-down. dividends. >> business going forward. alix: in the next 18 months, recovery and pricing power will come back. >> they have already written down the power unit. $20 billion. long-term insurance. write-down of $15 billion. >> must reads. >> the fun one. crazy town. the demise. who wants this one? >> $2000 a month. you get to live in 12 different places over the course of a year. >> official nomad. >> keep your day job. negotiate with your boss. you live in this real world house, apartment situation. sounds great. people signed up. emailoke up one day to an

from the ceo. money has run out. there is no way for you to get home. >> this is a reminder, when startups go down, 90% of startups that will start up any year, will not make it. sometimes it is the app not working. sometimes you're stranded in belize. alix: too bad you are stranded in fiji?! the founder said this. do you wake up one day and say, look at pno. >> they ran out of money. people, this guy is on instagram. he is starting new companies. bet oneople took a big this new lifestyle. they negotiated. you sublease your apartment. do what you have to do to be

gone a year and then all of a sudden, you are crawling back from brazil to a different life. >> ok, you can work from your laptop, go anywhere. they agree. all of a sudden, it doesn't work out. alix: you cannot have it all. >> if it is too good to be true, it is. alix: there it is. thanks guys. tune in to businessweek on bloomberg radio from 2:00 to 5 p.m. eastern. you will be dressing up. you have a tuxedo? >> we will see how fancy. monday night. bloomberg 50. celebrating downtown. red carpet show 6:00 to 7:00. >> all on radio. alix: coming up. >> bowtie. alix: angela merkel's farewell. standing ovation after her last speech.

the party get set to pick the successor. this is bloomberg. ♪

♪ alix: breaking news. john kelly is expected to resign in coming days. the chief of staff will be resigning. conversations for months as to how long he will survive in the white house and who might replace him? before this, secretary of homeland security for seven months until he took the helm as white house chief of staff. according to cnn, he could be resigning within the next few days. we will keep our eyes on any headlines that cross, including who will help president trump run the white house? from one political world to another. germany. angela merkel exiting underway. the party is gathering in

hamburg. applause in her final speech. >> we have always known the party is never just one person by him or herself, but always altogether. wewas not long ago experienced, strength and momentum we can develop together, even when we face headwinds. alix: matt miller. what are the odds? who takes her place? reporter: we don't know now. no one is venturing a guess. i have one of the candidates. angela merkel's handpicked successor. later, we will hear from her challenger. we have heard big political endorsements. the former finance minister. hopes the delegates

vote. peter, one of angela merkel's closest aides and the economy preferr says he would akk. there will be different leaders depending on who is elected. it is important. we do not know. alix: critical for germany going forward. bloomberg opinion article earlier today. the last phase of global prominence. is question is, whether it to set in its ways with too many vested interests to change course? -- do they fit into the bigger notice? -- narrative? recently she was most the minister, she is now the

party general secretary. she has been a student of angela merkel. she is saying, i am from the and wef angela merkel, have one for the last 13 years -- won the last 13 years. she will be pro europe, for example. on the other hand, the competitor being pushed out by angela merkel 16 years ago. since then, he has heard and served on a number of boards. most recently, the chairman in germany a blackrock. -- of blackrock. he has business experience. he wants to win back voters from the right. you could expect him to take a populist term, definitely more conservative. how will that affect his relationship with brussels? alix: thank you, matt. to recap the news.

kelly will behn resigning in the coming days, according to people familiar, citing that he will be resigning within the coming days. who might succeed him? questions as to how long he will stay in the white house. he was previously the homeland security secretary before. we will be following that story as we break that. expected to resign in the coming days. president trump is actively discussing a replacement plan. nothing is final. ultimately, it will be president trump deciding on that. watching headlines. we will bring them as they cross. ♪ alix: big moves. no news.

markets wild swing, traders guess why. investors versus the fed, again. markets almost priced out fed hikes in 2019. jerome powell says the economy is strong. russia is ready to talk cuts. no decision yet. can the country break the standoff between saudi arabia and iran? welcome to "bloomberg daybreak," on jobs day. david westin is off. i'm alix steel. european stocks front foot after lowest levels since 2016. s&p futures not participating in the rally. erasing declines for the year yesterday, down five pence of 1%. euro-dollar flat. how much movement will we see? -- down 5/10 of 1%. spread, five basis points

difference. two year yield, strongest drop since last may. crude holding on, up 1%, holding for the cut. we do not know how big it will be or binding. in a half-hour, the all important jobs report. searching for signs of peak job growth. november,,000 jobs in wage growth rose and no change in employment from last month. if you ask jay powell, that is a good picture. he said yesterday that overall job creation and gradually rising wages, labor market is strong. york ande, alex in new from london, the principal global investment strategist. good to see you. what number does the market need

to see to stop selling off? anything consensus. that numberwing, will not go down well. the fed is data dependent. anything shows that there is a weaker outlook, will be taken actively. equally, they worry is that, does the market respond negatively to anything? are they worried there will be more hikes? alix: fair point. is good news bad news again? bad news is also bad news. what is the right play? >> sift the noise. u.s. load on next year. i do not expect recession. , i am surprised by what is happening. the market is vulnerable. year, 75%kes next

chance for december hike, it is, there could be replacing of interest rate risk going forward. if we get strong numbers, a sharp upward move in bond yields, could be dangerous for equities. bloomberg, cute for 2020. expectations, blue line. flight line, fairly pricing movement. we may get a pause, from the journal. despite fed powell optimistic. is he right? >> i agree with what he said on the labor market. strong. indicators positive. another strong report today. we are in the situation where we are coming off the sugar high on tax cuts, which are not sustainable with the budget situation and the extra spending. the economy is returning close

to trend growth. it will be difficult to adjust. alix: the uptick in claims over the last few weeks, how do you understand that? >> they are still low by historical standards. the adp jobs report was strong yesterday. alix: markets did not like that. >> it missed by a small amount. the market is jittery and will struggle to find direction with the report today. if we get a strong report, that will put to rest immediate recession fears, which are premature anyway, and at the same time, a strong number, the market may be concerned the fed will be on a path for three hikes next year. alix: if you put money to work, how do you deal with that? where should you be investing? >> i worry for u.s. equities going forward. equitiesties and

globally, i like emerging asia. it may be just a weaker dollar we need. you need up quality for credit. for me, the best asset class is real assets. knowrmance from rates, we growth is still strong. whenever you think about the future, we know growth is strong. we have rates low. this is the perfect time for easing. alix: do you feel that way about other regions? anversation yesterday, seeing global shift in where you want to be in equities. it is not a shift in's equities in the u.s., it is global. >> i prefer international over u.s.. i like em asia. latin america, such a big move, valuations are not attractive. equities, european

equities, if they can sort itself out with the italy saga, that will be attractive next year. ago, a few months outperformance, can it last? the conversation was, we are pretty good. is that still right? >> it was not clear it was going to last. it was clear that we had a missed time stimulus. extra government spending late cycle, corporate tax cuts late cycle, deficit problem coming more obvious. i think what we are seeing is predictable. we are coming off this unsustainable boost to growth we had because increase in government deficit. alix: where is there still tightness? where are we seeing more slack? >> the job market is still tight. it will be interesting to see what happens with the goods sector.

manufacturing, it is cyclical. employment in the sector over the last threeemployment in ther the last three years, growing faster than service sector. turndown will happen first in the goods sector. alix: good perspective into the jobs number. 24 minutes. ma, sticking with me. larry kudlow will be joining at 9:30 a.m. do not say sugar high to him. he will get mad. highlighting oil. brent up 1.5%, higher in the last few minutes. this on a report that potentially iran has agreed to opec deal. different report from iranian delegate, iran has not reached a deal with opec. get ready for swings. iran is the holdout. they do not want to agree because they are under u.s.

sanctions, hurting production. this wille how whippy be for crude throughout the day. coming up, ceo reading on hiring trends. this is bloomberg. ♪

♪ emma: this is "bloomberg daybreak," with the bloomberg business flash. getting into the marijuana business. buying a 45% stake in

cronos. cronos soaring. became the first major economy to legalize. louisville slugger baseball bats, $5.2 billion in cash. investors isnority a billionaire founder. chevron raising the spending budget for the first time since 2014, as oil prices plummet. they will increase investments more than 9% to $20 billion next year. chevron looking to expand footholds in texas and new mexico. alix: wages front and center. jobs report. average hourly expected to advance, after topping 3% for

the first time in a decade. cycle hi if we hit 3.1%. how tight is the labor market? ceo, snap on chairman and alan still with me. these guys talking football during the commercial. this is about wages. >> same thing in some ways. for us,mparisons >> certain plants are ok. national association of manufacturers will tell you 48,000 jobs are going bacon. part of that is skills. skills people. that has been an issue. alix: areas where it is tight, what do you do? higher wages? protecting benefits? >> we can find people if we spent time -- people, with respect -- like to work for snap

on. it makes a difference for people. one of the reasons why people don't work for manufacturing companies is they think it is the consolation prize of our society. we can talk about wages and those are important. we have raised wages 3% every year since recession like clockwork. we pay well. we think people like to be in a company where they are relevant. one of the issues is, as i said, people think, if they are signing up for manufacturing, minusesll be the gamma in all this huxley terms. >> i am struck by how high-tech they are. they seem like the future. not the past. >> you would think i am a character out of silas marner. i spent the week in tennessee. it is no longer dark and dirty. it is complicated.

only 2000, in a year. that means workers have to be capable to handle customization. that is the future of manufacturing. it allows american manufacturers to take advantage of the one inalienable advantage they have. proximity. it is hard to send a variety 10,000 miles in all time zones. it works well for us. there is a question. people talk about manufacturing. new york times had an article last week talking about the people who work in manufacturing being the useless class. >> very inaccurate. you mentioned the demand for tools. withensitive is demand respect to home sales? >> we do not sell construction.

we sell to people where the task is critical. the penalty for failure is high. the need for reliability justifies the snap on level product. it is different. people use snap-on because it gets the job done every time no matter what. i am making a commercial now. the other thing that is interesting is, it is the outward sign of pride and dignity that working men and women taken their jobs. if they are using snap-on, they declare that they are doing something special, perhaps as special as a surgeon. it counters the consolation prize idea. we are so sensitive. >> do they want to do more of that kind of work when they get a home they want to customize? >> we do not sell to amateurs. alix: not the answer you want. >> really. shalt not sellou

to diy. that would erode the idea that you are somebody special. you are a craftsman. women, working men and one of the reasons for the last election, they felt they did not have respect. you can read any number of books. snap-on, part of our businesses we dispense pride and dignity and distinction. alix: there was an article a few weeks ago at bloomberg talking about demographics, saying, the working number of americans from 65 to 74 will grow 4.5% in ways much faster than any other demographic. do you see that at all in your business? >> i don't know. i can't speak to the exact numbers. average snap-on guy, 14 years. they stay 28 years. coming back to customization. i was in a factory. they are skilled.

we invest in them. when you say, workers of the most important part of your company, you have to act it. we hold onto them for dear life. alix: what do you think? >> boosting labor force participation. we are heading toward a worker shortage. companies will be more enlightened on how they recruit and retain. workople get healthier, becomes less strenuous, we are seeing people extend careers. public policy has not adjusted. labor force participation rises for the older demographics. alix: that point of changing the types of jobs people have. the article -- someone who is 70, does not want to work full-time. they want something social. maybe a restaurant? they want interaction. how does that change? >> a change the nature of supply for work. we are seeing more

self-employment among that group. they have more skills. they build up networks and contacts. they can become self-employed. sometimes companies prefer that. >> one of the things is, one of the misconceptions about a factory, a factory is not antisocial. you should hear the workers talk. alix: ok. >> they spend a lot of time talking. alix: are you recruiting now? >> everyone is trainable. i believe this. manufacturing needs to be able to recruit workers to fill 458,000 jobs and the 2 million open in 10 years and part of it is overcoming the idea that these jobs are dark and dirty. they are jobs that allow you to keep your family warm, safe and yuadry. alix: what do you see as the biggest headwind? >> our ability to expand. we are strong in automotive

repair. because, we understand that work well. that generates. we have 70,000, we keep bringing out new repairs. understanding oil, gas, the military. the penalty for failure is high. understanding those businesses and bringing out new products is a task. alix: snap-on ceo, thank you so much. alan sticking with me. back to oil. brent prices up over 2.5%. it appears opec is inching closer to a deal. iranian delegates say talks are ongoing, they are focused on the wording. they are haggling language. they are approaching a deal, looking for the right words, pivotal for iran and president trump and how he will react to cuts from opec. crude, highs of the session on that.

the dollar struggling for traction ahead of jobs report. this is bloomberg. ♪

♪ alix: dollar struggling to gain traction. what is the right trade? brad, how are you set up? >> we are looking for a number slightly above consensus. $220,000.looking for we will set up for good equals bad and bad equals good. if we get a strong number, that might reinforce the view jay powell are on track. that could be negative for equities and drag down dollar-yen.

aat number could reinforce pause on the horizon, sometime in 2019. perhaps that is a positive for equities or dollar-yen. alix: u.s. dollar stable despite aggressive fed repricing and the flattening of the yield curve. why? >> year end effect. natural demand for dollar. screenndicators don't there is a large amount of dollar demand. typically there is. you can look at currency forward points and cross currency basis swaps. there is tension. that might be part of it. volatility in markets, hedging costs for foreigners to buy u.s. assets now are high. a lot of things going on. that is been part of what is keeping the dollar more supportive. january, that could start to wane. you might lose dollar support

first quarter. alix: bearish dollar call getting more traction in investor market, particular morgan stanley, adamant that the bull market is over. base case? drove the at what dollar so strong this year? mainly relative performance between u.s. and the world. taking that idea into 2019 -- the u.s. will slow. i do not expect recession. likely to slow. the world could do well. part of that, we think the monetary fiscal stimulus in china should kick through and we see recovery in growth there. underperformance from u.s. compared should push dollar down. not much conviction. no one is expecting major drop in the dollar. alix: how does that play into sector outlook in terms of earnings? >> a hard on.

one concern, when you look at financials, dollar funding costs weighing sectors, especially financials preferred. it will be interesting to see playing forward, what happens to foreign demands and u.s. financials, and if that still plays in favor of european and asian credit. alix: what we have seen in the last couple weeks, massive pickup and volatility in equity. fix at record -- vix at record. will that bleed through to equities? >> for sure. vol have been in demand the last few days. decent buying ahead of g20, this week as well, as equity markets selling off. yen vol is supported. it is not risen dramatically.

pockets of it, ozzie versus -- aussie versus yen. it continues to build. >> above consensus job growth, below consensus wage growth. if that materializes, how will the market respond? more weight on unemployment or wage growth weaker? >> wage growth is key now. the focus is inflation this year. we had a ramp-up earlier in the year, dying down into the end of the year. wage growth number becomes important. it is indicator of broader inflation outlook. off thewhat powell keys most. it is important, both sides are important this time around. issues,fp front, claims things that looked rough in continuing claims and other

indicators. we want stability in nfp, continuation of wage growth, hourly earnings. both are important. wage growth is key today. alix: thank you. us.a sticking with alan still here. your take on this. labor force participation, not dropping as fast as you might have thought. let the labor market run hotter? >> labor force participation is andable, 62.9% last month, the month president trump came to office. a tug-of-war. more workers. older workers have lower per tusa patient rates. i recovery -- participation rates. the rates for women have canceled each other out. we will not see it go much above 63%. if it gets there, maybe it will

get there this morning. my guess is, there is not too much slack left on labor force participation more than, unless we do things to draw people back to labor markets. make the markets more accessible to women with children. maternity leave. things that scandinavian countries and canada do, that have higher participation rates for women then we have. alix: if we don't get that, can we sustain lower unemployment rate? how long? >> that comes down to inflationary pressure. inflationary pressure. wage growth and how that feeds through to prices. it does not look like there is too much pressure getting out of hand. rates stay too low to long with an economy above potential, that could lead to financial imbalances. that is a risk. we saw that in 2008.

nobody wants to repeat the financial crisis. alix: truer words could not be said. you will be sticking with me for those numbers coming out in one minute. quick check. equity rally underway in europe, european stocks close at lowest level since 2016. the dax, under performer, up six tents of 1%. industrial output falling while wages rose. -- up 6/10 of 1%. other assets, mixed dollar story. hard for the dollar to find direction. hard to trade job numbers, good news could be bad news but bad news could be bad news. trying to flesh that out. 2-10 spread continues to flatten. 11 basis points where we sit after the monster drop on the two year yield yesterday. now back to flattening story. crude up over 2%.

some headlines. proposal for 800,000 a barrel a day cut, maybe. that is not agreed on. jobs numbers. michael mckee joins us live at the labor department with the numbers. mike. mike: it is a weak number, only 155,000 jobs created as tariffs bite and holiday hiring is weaker than expected. unemployment stays at 3.7% and average hourly earnings are up rate.t an annual the labor force grew, and labor force participation unchanged at 62.9%. you see the impact of tariffs as employment at primary metals manufacturers like steel foundries grew by 2800. metal fabricating jobs lost 1500 jobs, an auto and parts manufacturing jobs were down by

800. business hiring did not match expectations. total retail hiring -- 18,000, about 10,000 less than this time last year. almost all that hiring in department stores. furniture, electronics, sporting goods, and clothing stores saw payrolls dropped. internet shopping may have something to do with it. careers and messengers added 10,000 jobs to deliver those packages you are going to buy. the workweek falls by a 10th. african-american unemployment falls to 5.9%, matching a record low. but youth unemployment rises by 0.2%, to 7.6%. mckee, thanks a lot. a big mess. markets on the move. it looks like bad news is good for equity investors, the dollar erasing games. yields dropping, curves flattening, equities moving higher. running is on the phone, interest-rate strategist.

alan krueger still with us. your initial take on these numbers? by the am surprised market reaction. the overall report was pretty sound. -- 250,000 jobs a month, we are going to adjust 125 thousand. this would not change my outlook much. i think michael had an interesting observation about the tariffs causing problems for the job market. the retail trade number is going it is a little surprising that consumer spending, which has been strong, is not driving more hiring in retail trade. as a whole, i would say this is another solid report. wouldere at the fed, i say this is the economy continuing on the path i thought it was on. in fact, the wage number hardens a bit.

the base adjustment, you might have thought wage growth would be a little weaker. alix: ira, we heard from dave upheld yesterday. -- dave appel yesterday and he felt good. do we sustain? ira: the market is flattening and might do that further from here. i think a big part of the reason for this reaction is, aggregate payroll income dropped impaired to what was expected. it is not that this is a bad report. it is a bad report come a compared to expectations that it is a bad report compared to it is a bads -- report compared to expectations. compared to last month and expectations, it is lower. it is an ok report, but missed expectations. that, i think, is why equities maybe are going to think this means the fed is going to pause sometime in 2019. that is good for equities. slightly hourly -- lower yields

also good for risk assets. alix: is this a risk on signal for you? >> i do not think it is a risk heaven on signal. the market reacted -- i do not think this is a risk-on signal. the market reacted. the labor market is slightly weaker. there is a chance the fed may not hike in december. that is at the forefront of markets' mind. that is an idea traders will keep in mind as they go forward. i think this is a generally solid jobs report. it is not a huge mess. is not aourly earnings bad number. it is what we expected. i don't think it is telling us anything majorly new. alix: fair, yet the markets still moved. why.i am puzzled as to we go from the fed looking at three rate hikes last year, and in december. market believes that 10 days ago. you get a relatively solid jobs number, minor misses on the

margin, and we are rewriting in a big way. ira: it started earlier in the week. december hike, i think, is done. though there is a small chance the fed will miss december, the market is pricing for a december chance of one50 hike next year. we are not talking about a significant number of more hikes. in general, i think that is going to be what might support risk assets. on the rates side, the question is how much more flattening can there be, if the fed does not hike and we still have reasonably robust growth. at some point, the flattening will have to stop, and turn into a bit of steepening, or a pause in the flattening for an extended time. alix: i remember six months ago we had this conversation. you called 20 or 25 as they 10, and i wasor 2/2

like, that is insane. we are at 11. how far can it go before it sends damaging signals? ira: the market next year, pricing for the curve is around zero. 18 go out further, 12 to months, the market is expecting steepening. the market is starting to think the fed can hike a couple more times. then they are going to stop. we will wind up having an ok economy. a slowing economy into 2019, and with faster growth, 2020, a common event policy, or at least no tightening. that should be good for the economy. that is what the market is pricing at this moment. alix: we are looking at less than 15 basis points for next year. -- alan, you had a couple

of minutes to look through the numbers. only the good points. not think this report is going to change the fed's views. alix: changing the markets to be sure. alan: the good news -- the revisions were small. michael did not mention them for good reason. last month was revised down a little bit, but pretty much a wash. i would focus on the hours. if we are seeing the workweek coming off the high, that would affect the total payroll. that could be significant. to the extent there is something in here that is a surprise, i would say it is the hours. i 10th of an hour does not sound h of an hour does not sound like much, but in full-time job equivalents, it is substantial. alix: how did the weather play into that? alan: i would have thought we would have bounced back from the hurricanes. that is why i think expectations for the top line were around 200,000. 129 thousand workers were

unable to work because of the bad weather. does that have a bounce back? alan: i don't think that is a huge number, from the month to month comparisons. i have seen bigger when the big hurricane would hit. alix: what is the expectation when we see a minor but slow decline in the average hourly workweek? fed: to some extent, the wants a soft landing. this is sort of a soft landing report. unemployment rate was constant. bit,rowth adjusted down a not to an alarming weather. the workweek adjusted down. not by a alarming amount. an alarming amount. more reports like this, and the fed might say, we are engineering the soft landing. alix: that this up for me, going this up for-- wrap

me, going to the data points, and how you will interpret for things like e.m.? >> e.m., the important thing is what happens to the dollar. that story can only play out as we start to see clear trends in growth coming through. in terms of motion points for the u.s. economy, it is inflation. we think it will feed into inflation, hourly earnings. that happens because of the opec meeting. that has been breaking lower this week. we need to see how that plays out as well. generally, i would say if you look at bond yields where they are, it does not make sense, when you have an economy as strong as it is, unemployment so low, average earnings ok. it does not make sense for yields to be this slow. i think there is upside risks to bond yields, and that is where markets should be focusing. alix: thank you both. krueger of princeton university sticking with me. let's recap what happened.

we had a miss on the jobs number, coming in 155,000. hourly earnings miss on a month-to-month basis. average work week also fell by about 0.1. the market reacting. dollar weaker. yields dropping. equity futures starting to push higher as if the bad news is the news right now in markets. the other part we want to address is oil. 5%.prices popping almost apparently, the opec meeting has ended and the agreement is 1.2 million barrels a day cut. that is more than the rhetoric yesterday. you had the saudi oil minister saying it feels like one million barrels cut would be good. now, we are looking at 1.2. also news that iran will be exempt from production cuts. that is a win for iran. a were making the case they did not want to be subject to a cut because they were under u.s. sanctions. plus is stillopec

intact. we will break down what this asns, and price volatility crude continues its gains. up next, samara will be joining us for her take and what it means for the world going forward. ♪

is "bloomberg daylight -- daybreak." coming up, larry kudlow, economic council director. this is bloomberg. alix: oil on the move, brent up almost 5% on a deal that opec has reached, a production cut

deal, 1.2 million barrels a day, opec plus, 2/3 from the opec countries and 1/3 from non-opec countries. how did they get to this deal after 24 hours of negotiations? i am joined by anne-marie gordon. it was russia versus the saudi's. -- saudis. how did this come about? those three countries were in delhi in 2016 and there was never a deal. there were a lot -- were in doha 2016 and there was never a deal. there were a lot of meetings. first, mr. novak met with iran. now, we have the numbers. we are seeing bullish crude. it seems like they were able to get a sweet spot. i am sure they realize that. the language is going to be crucial here. iran is saying firmly that they are exempt from the cuts, and the saudis were saying they

were going into this not having exemptions from any single country. alix: we have another headline, saying russia is agreeing to this. that is goingknow to be important for the market at this point? annmarie: what will be important for the market, and more so politically, on how these ministers take it back -- how the minister will take it back to tehran, he needs to be able to politically sell this deal. that is crucial. which countries will get exemptions? and venezuela. also, who is bearing the brunt of these? that will be crucial for saudi arabia. they do not want to be seen politically, in face of president donald trump, as bearing a lot of the burden of these cuts. hordern joining us from vienna. what did you make of it,

a 1.2 million barrel cut? tamar: we are surprised. we were expecting a million. saudi did a good job talking down expectations. we knew their hand was really tied going into this deal. we needed -- they needed a cut, and wanted it more than anyone else. russia was flexing their muscles. russia did not need the cuts by this much. we think a cut of over a million barrels a day risks going to far, too fast. opec could find themselves next year having to pivot on policy because they over cut, and we have seen that story many times in the oil market. alix: what is the upside potential for oil in the short-term, that there's have to rethink?-- that bears have to rethink? annmarie: we only priced in a cut of about 500,000 barrels a day. the full extent has not been priced in. but the devil is in the details. we need to see what is in the of theque, the language

baseline levels they are coming from. do they cut from november levels, which are a lot higher? a cut of 1.2 does not necessarily get the job done. or are we cutting for october levels? the markets need to see proof in the data. do inventories start to come down? we see that saudi will continue with the policy of continuing to reduce exports to highly visible markets, such as the u.s. in the u.s., a big reason for the drop was a decline in what we imported from saudi arabia. we need to see how compliant russia is, especially in winter time. it is difficult for them to draw down the production. alix: going into this, the conversation was a lot about saudis have to say the right thing to not upset president trump, and have to do the right things for their own fiscal budget. what is your take on president trump advocating lower oil prices, and basically becoming a member of opec along with russia

at the end of the day, to some extent? how do you think about that when you say global economy, geopolitics? alan: i think it is dicey for the president to get involved in the price of oil. a lot is beyond his control. it has mixed effects on the u.s. a lower price leads to less investment. we saw that a lot of of the business fixed investment is ,oming about because of energy and expiration for more oil in the u.s. for more oil in the u.s. when the price drops, it has short run effect on activity in the u.s. it used to be it would just a consumption. now it is more mixed, with different regional effects. i guess is the president will not be happy with what opec decided. i think it is probably better to work behind the scenes rather than be in front and it comes to oil production. alix: more headlines coming out. october will be the baseline. it seems like that would be a substantial cut, if we go back

to the october baseline for opec members. what do you feel like is the new opec? is this really a saudi and russia conversation now? is opec still worth anything? tamar: opec is far less relevant than ever used to be. we see the smaller members have changed. there is worry about u.s. shale taking market share. that has made them more incentivized to pump oil now, and we also know that as the world at large tends to shift to lower-carbon economies, a lot of countries that have multi-decades worth of resources are concerned about having stranded assets. they are focused on come -- on pumping more. opec itself, the original cartel, is marginalized come out with russia staying on board with the saudi agreement. -- is marginalized with russia staying on board the saudi agreement. you do risks stoking antagonism from smaller members in the

opec. you saw that with qatar leaving earlier this week. alix: important in the u.s. is the energy picture. will that affect the pass-through of oil to inflation in the u.s. differently? alan: not necessarily. alix: expectations, for example. alan: we have something of a benefit because oil is more tracked here, because of the pipeline distribution and of uti trade, the lower -- and wti of brent. price what will drive inflation is how much the domestic price grows. that goes in hand with the world price. alix: what is interesting is how we will get the details into what they are cutting. opec usually cuts -- they cut heavy crude. we have a shortage of that, versus light crew -- crude. we have an overabundance of that in the u.s. how does this play out globally? alan: with the u.s. being -- tamar: with the u.s. being the

big producer of the light crude, which is crucial for producing gasoline -- that is part of the driver. also in canada they are forcing curtailment of production of heavier grades. we have to see how it pans out. going into next year, we are focused on what happens in the permian. it is the biggest source of light crude in the u.s. you had schlumberger saying that even though the pipeline issues in the permian have been well constrained, and telegraphed to the market, we have not seen it play out in production figures yet. going into the first half of the likely to seere this show up in production figures, in terms of lower production. that amped up supply of light crude might not be as robust next year as we might be modeling now. isx: i am sure schlumberger like, use my oversight business, which is a big part of me. alan krueger, thank you for joining me onset the whole hour.

just to recap, opec has agreed to a production cut of 1.2 million barrels of oil a day. it is in october baseline, so it looks like some material cuts. be opec plus, which includes russia, and 2/3 opec. iran looks to be exempt. comingld have a newser out this morning. russian energy minister mr. ,ovak has entered the meeting which will start shortly. a recap on u.s. jobs markets desk jobs numbers, and what it means for the fed. more on that next -- a recap on u.s. jobs numbers and what it means for the fed. more on that next. ♪

alix: u.s. jobs number disappoints. michael mckee is in washington. created5 thousand jobs is weaker than expected by quite a bit, though still more than we need to absorb new entrants to the labor force.

onh the wages, the fed is track for december, but it will upset the market. people are beginning to wonder -- are we starting to see the economy cool? we saw that in average work week. it falls to 34.4 hours. a mixed report as tariffs start to bite. holiday hiring is a little weaker. there are questions about sustainability. alix: yields unchanged after dropping like a stone after the report. digging into that in the next few minutes. michael, good to see you. markets:, "bloomberg the open." larry kudlow on the sugar high the government says will continue. ♪

jonathan: from new york city, i am jonathan ferro. the countdown to the open starts right now.

coming up, jobs day in america. payroll coming in below forecast. estimates.missing jerome powell insisting the labor market is strong, but investors are pricing out ministerseven as opec in vienna appear to nail down output cuts. good morning. futures erasing the session's losses. we are flat on the s&p 500. the bond market, yields unchanged on the u.s. 10 year. in the fx market, the euro slightly firmer. -- we cross report over to d.c. and catch up with michael mckee. highlights, please. mike: you know the number, 155,000 jobs. weaker than expected. you only need 110,000 to absorb new entrance into the labor