>> markets should take notice. when you look at the market reaction today, i think what they are telling us is that string of hawkish central meetings is over. >> it is not just about the fed. it is about what is going on in >> the rest of the world. >>central banks will come across the same issue. >> is when the labor market breaks that we really struggle. >> this is bloomberg surveillance with john ferro, tom keene and lisa abramowicz. jonathan: s&p 500 close to nine percentage points today. from new york city this morning,

good morning. this is bloomberg surveillance live on tv and radio. equity futures negative this morning by .8%. going into payrolls later this morning. tom: tech earnings, job report coming up, as well. you are looking at layoffs, rightsizing and rationalization. the word i use is clumsy, what we saw yesterday. it was story to story. the number one story i saw was, could tim go to washington and solve everything? lisa: [laughter] tom: yeah, apple is off today. he is not laying off anybody. he is the anti-big tech right now. jonathan: comparing moves today in the premarket compared to the moves in the close yesterday. apple was up 3.7% yesterday. etta was up 23 percent. alphabet was up 7%. when you look at the price action this morning, compare it to yesterday and we are like yes

-- he -- this. unchanged. lisa: meta-are still up on the year, still doing well. the key question, is this the beginning? you talk about layoffs heading into the job -- ? i think that was one of the conclusions i drew. tom: or the bipolarity of the two companies. this alternate universe of four or five companies and everyone else is, with your earnings report, lisa, are brilliant. what they are showing the rest of america. lisa: when you look at consolidation profits, apple consolidated 85% of smartphone profits last quarter. tom: wow. well done. lisa: intel is losing. you see taiwan semiconductor manufacturing company winning. samsung winning. this is winners and losers. tom: on unit sales, i do not

have marked unit earning numbers in front of me. basically, iphone, omg, are down x number of percent. tom: that is the iphone unit at apple. let's talk about the cloud business. the guy we have had from microsoft working at deceleration, the guy from other companies, now amazon, is the same story. we have to think about deceleration. that is the shift in the last five years. lisa: and talking about how they will use artificial intelligence to boost things. they are not talking about seismic growth and expansion. they are talking about rightsizing the platform they currently have. tom: this is so painful for sony people. jonathan: i think it is well and good sitting here saying, the week data is going to come. i read that note at jp morgan early this week. this is the idea you can be short this market in the face of

a rally like this. it is painful to do that. tom, what we need to work out is through window of opportunity how big is that window? is that window about to slam shut off the back of really week economic data or not? tom: i like what olivia blanc chart says in his chart, the last big pandemic -- we are getting is affecting everyone. take amazon as a whole in spades. the labor model is going to be the outcome for the american people. you look at the jobs report we will see at 8:30. i guess surveys under 200,000, that is beginning that show the labor range you're talking about. jonathan: 189, still decent. tom: i am flabbergasted. claims got buried yesterday. was that yesterday? look at the four-week intraday moving average of claims. jonathan: futures down .8% with price action together.

equities today, softer but ove last week, nasdaq is on course for a fifth week of gains. best week since november. up about 5% on the week, up 17% year to date. that is phenomenal. tom: thank you for staying with us on radio and tv over three exhausting days. how do you link this together? i think the way you do is today's jobs report, if you see some form of quiet wage growth, that gives us further backstop to chairman powell to do what he shocked world within that press conference. that extends out the duration plan in tech and the nasdaq 100, maybe perhaps continues its lift. jonathan: wages, a big focus at 8:30. lisa, i think you did all right. lisa: [laughter] i will say, picking up what we are talking about, this is what i am talking for. you talk about the $189,000 for the u.s. january non-form -- nonfarm payrolls report.

i am watching hourly earnings. how much they go down, is that enough to give the fed confidence to downshift in tandem with what the market is expecting? 9:30 a.m., labor secretary marty walsh joining bloomberg television. i am curious what he has to say what he has to say from the push from google. -- does he support that? 10:00 a.m., ism services index data. do we get an actual we acceleration into positive territory, expansion territory? we talked about what we saw in the manufacturing and factory sector. deep contraction that seems to be deepening. perhaps, not the same story in services. jonathan: thank you. looking ahead to data. fantastic. tom: do we get german inflation? jonathan: not yet. next week. [laughter] did you see the compare and

contrast between lagarde and powell? were you surprised by that? tom: it is like how the world cup looked last december. jonathan: this, 24 hours after we heard chairman powell saying the disinflationary process had started. tom: i was significantly exhausted. jonathan: once you have said that, would you follow it up with the same thing, which is we've got more work to do? no one is listening to that anymore. i am focused on the new stuff. a lot of people think these guys are done. one more, they are finished. tom: there is no question the market is modeling -- are they modeling at high inflation, maybe not. we are way beyond 7%. jonathan: ron, could we start with this rally in tech? not this morning, but year to date. are you into that rally, are you fading that rally, how are you

thinking about that rally? >> i think investors have gotten ahead of themselves in terms of extending that duration. this, to me, is largely about a interest rate call in the tech sector where people are betting that interest rates are going to be down and stay down. i think they are extrapolating far too aggressively in terms of that comment about the disinflationary stage having started. yes, there are signs inflation is decelerating, but this inflation fight is not over yet. i think investors are overestimating how quickly they are expected the fed to be cutting rates, far too quickly and cutting them from levels i think are too low. i think this is a rally you do want to fade. feels to me like people basically trying to make a play we are going back to the good old days of zero interest rates in qa -- qe. that is not happening. tom: if this is a short cover in equities and bonds and you've got the gamut, the convexity, whatever greek you want to use,

you hedge the january lift? ron: i guess i look at it, there are a range of factors going into it. i am not sure if you call it short covering as much as people are sitting on a lot of cash. if you look at the hedge fund market, a lot of hedge funds were not highly levered into the year. a lot of investors on the institutional side are -- it is a best -- but of -- bit of fomo. they are feeling forced to extend duration. that is the pain trade right now and that is where you want to fade it in terms of trying to position. the hard part is, i do not think it has extended so far it is an easy call to be saying, let's go short again on this market. lisa: does the rally we see now and the optimism around a soft landing ensure the per pain or a harder landing later? ron: that is part of my concern.

if you look at the bloomberg financial conditions index, financial conditions are easier than they were a year ago. you have had a fed that has raised rates 450 basis points. yet, we have an equity market that is basically heading back higher. we've got credit spreads tighten, bond yields going down. this is effectively a market in my view that is almost fighting the fed. there is a little bit of selective perception in terms of we hear powell say there is -- this inflation has begun. also telling you markets going higher and ignoring the part of the message it does not like. jonathan: people are allowed to have a different forecast than the fed, aren't they? ron: i think in that regard with respect to powell, i think he fumbled the messaging in the press conference by saying they have different forecast. that was counterproductive to what the fed is trying to accomplish in my view. jonathan: ron vimpelcom you were not alone with that view. let's be clear.

the comment on financial conditions, the comment on forecast, i am not here to change anybody's mind on that forecast. that is precisely what they have been doing the past nine months. this goes back to that quote from steve england yesterday. we've got conditional hawkishness. non-conditional hawkishness to conditional hawkishness. tom: dr. englander is a yale sophisticate. this idea of unconditional dynamics over conditional dynamics is fraught with a lot of before the fact, after the fact dynamics. guess what, i think steve englander would agree with us. there is massively ex post, including what we are going to see at 8:30 this morning. jonathan: he speaks next week in washington. chairman powell p are you expecting him to walk this back? tom: that is a good question. i think he may send out surrogates to walk back to maintain their ultimate fear,

which is to lose credibility. jonathan: that is how we kick off the week next week. is powell walking this back or repeating the message which a lot people received in the news conference this week? lisa: if he walks it back, it is perilous. there is a credibility issue. at the same time, you talk about ex post facto. not necessarily if they are saying, we are worried about going too far. suddenly, this is a different aderholt reserve. jonathan: equities down .9% on the s&p. coming up --we are looking forward to that. freezing cold in new york today. what is the line in the sand for you? the line in the ice? what makes it cold for you? tom: line in the sand is when you get six inches of snow and your dad says snow -- shovel the snow rink. the next day, you get six inches. jonathan: it is not going to snow, right? just ice? tom: no.

jonathan: we will talk about the weather balloon next. lisa: [laughter] a crazy story. jonathan: whether or china? china, obviously. that is next. this is bloomberg. ♪ lisa: keeping you up-to-date with news from around the world with the first word i am lisa mateo. the pentagon is tracking a chinese surveillance balloon that lingered at a high altitude over the western u.s. that balloon was spotted over montana. with a ballistic missile silo. pentagon advised against shooting it down because of the risk of falling debris. this could couple kate secretary of state anthony blinken's visit to beijing next week. wage growth historically low. jobless rate at a high. vacancies expected to keep fed from lowering interest rates for some time. today's jobs report is likely to show that payrolls rose by 189,000 in january. shares of apple down after the

company reported its worst holiday performance in four years. supply chain issues and softening economy hurt iphone sales. revenue fell 5.5% in the december quarter. apple's biggest sales period of the year still, ceo tim cook sees signs of rebound in china. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

>> we believe the house cannot pass a debt ceiling bill the way they are talking about. that, if it is minor cuts, the magna republicans -- the more mainstream cuts, the more -- i don't think they can get a plan together. jonathan: chuck schumer there, bramhall looking for a sub 100 k later today. lisa: wait. no, i am not. it was not a deepfake. i was citing that some people

were saying, including morgan stanley's seth carpenter in the next few months, you can get someone hundred thousand possibly. i am not saying that. to be clear. jonathan: [laughter] unless it is sub 100 k, in which case, great call. lisa: [laughter] jonathan: equity futures down .9% on the s&p. earnings not tremendous from some big tech players after the close yesterday. the rally we have seen so far today is the headline. nasdaq up by 17% year to date on the nasdaq 100 on the s&p, close to 9%. yields unchanged. euro-dollar 1.09. tom: after the marathon three days we have had, can we institute surveillance gdp? jonathan: you want to do ai for surveillance? tom: we might as well. jonathan: deepfake the anchors. most painful trade, the apocalypse is postponed.

he says, fade the s&p 500 above 5.2 k on peak old deluxe this month. tom: with immense respect, the writing this weekend is going to be superb. we have to get to annmarie. the bottom line, you've got dan ives at 9:30 this morning. jonathan: i am anxious to talk about your childhood. i cannot wait. tom: ok. i am not going to go into details. long ago when i was seven years so -- old, i stood in the grass with fancy guys with spy cameras. they looked up at the sky. not at sputnik, but a thing called echo. echo was a thing like a big ellume going through the sky that revolutionized how we communicated. it was trying to bounce radio waves, information from the ground and up to echo and down again. annmarie hordern, our bloomberg washington space correspondent on the modern echo, a chinese -- what are they over? what are they taking shots of?

annmarie: at this moment, we do not know. the administration is not telling us the location of the surveillance balloon. the surveillance balloon was spotted over montana. the concern is, that is where we have intercontinental ballistic missile silos. this is a concern for the administration, given the fact that, why are the chinese sending this surveillance balloon over the united states, particularly the timing of this is questionable in the fact secretary begin is headed to china next week. china already has low-level satellites that can also have the capability of doing the same exact thing as this surveillance balloon. why did they send this surveillance balloon? this is getting more attention. tom: i know your phone is probably off the hook about this. this goes back to sputnik in 1957. a question from 1957, can we

shoot it down? annmarie: at the moment what the u.s. has said and what secretary of defense lloyd austin, what he said that was that we should not be shooting it down. potentially, there would be damage from the debris that would come down and they do not think the capability of the surveillance balloon is such that it is worthy to have that potential debris. they probably have the capability to shoot it down, but they have decided not to. jonathan: i think the key part of the story is, this is not the first time they have spotted this. they are well aware this has been going on. the talks will continue because the talks never stopped between the two sides even when they knew this was going on. annmarie: right. for decades, the chinese have been talking about the fact the u.s. has spent -- sent spy planes and ships spying on them. this has been a broad issue, a moment of tissue between these two sides. a question this morning, people

are asking will secretary blinken go on this trip next week to china given the fact this administration is getting pushback from the republican and using this instance with the surveillance balloon as a reason to potentially -- maybe secretary blinken needs to rethink. this was the next stage of setting that floor under the relationship of the world's two biggest economies. jonathan: tell me about the latest reporting. where are we with that meeting? have they responded to questions about that in the last 24 hours? annmarie: at the moment, nothing has changed publicly. these are conversations i imagine her happening behind closed doors. wall street journal is reporting they -- the state department called in, the representative from the chinese embassy. they were called in. this is going to be top of mind for everyone in washington, d.c.

today, especially when you have the likes of rep caliber, who is responsible for this new china committee who is looking at the threats from china saying nothing has changed the chinese communist party, even though there are potentially warmer talks. lisa: it is ironic when earnings come out with u.s. companies that are largest and most profitable and they point to china and there recovery there as a point of optimism in their earnings. the u.s. sees tensions increasing with china. how is washington reflecting this growing divide between what we are seeing in d.c., the beltway and wall street? annmarie: it is difficult. the business community is entrenched in doing business in china and making sure they are part of china's reopening, the growth story and china. at the same time, the administration is trying to put part rails on all parts and all avenues of this relationship between the united states and china, whether or not it is business, national security.

at the same time you are talking about apple looking at what is going on in china, you have news out the philippines and u.s. are going to start once again joint drills on the south china sea. it is a difficult moment to balance. tom: help me, here. lisa: tom does not agree. tom: it is not that i do not agree. to be blunt, i grew up with it. to be as direct as i can, it is a balloon. it is not going to turn over montana and spy on the eagles training camp for the super bowl for the kansas city chiefs. it is a balloon. it floats over ferro's apartment in new york and a couple of days. it goes over the atlantic ocean. where does it end up? portugal? annmarie: i do not know. i am not a surveillance balloon expert. i do not grow up with it in the same way you might have. there are still --for the most part, when countries want to conduct surveillance over countries, they use drones or

low-level satellites. jonathan: with drones. they use drones for training day. tom: i did not know that. jonathan: they do. to make sure people are in the right places. tom: amh killed it. jonathan: thank you very much. this is a tough situation. we have talked about it yesterday. tim cook is fantastic at navigating both sides of this. the china side and the u.s. side. it doesn't seemingly ever seem to get caught in between. i find it remarkable he is pulling that off. tom: i asked dan ives about this. my answer to the iphone supply constraints and the fancy iphone is doing well, both american citizens and chinese citizens want the product. that is the common feature. lisa: i have done research. the guardian has an explanation about why balloons can be used. [laughter] be used instead of satellites.

they are much cheaper to launch and can target from a much -- much more comprehensive amount of land with a longer duration from closer down. that is the reason why people are returning to the old once again. jonathan: thank you. you seemed eager to fit that in. lisa: i think that is interesting. why would you go to a balloon if you have satellites? it is so low-tech people are laughing. it is like sticking a little helium. tom: we did a mock echo in one of the basements -- had to lock up a small, white thing. lisa: in a basement? ? did youride it around the basement tom: no. did a mockup of echo one. jonathan: serious stuff. very cool.

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jonathan: equity futures -.8%. tom: crisis. jonathan: [laughter] good morning to you. on this payrolls friday. we will run you through the tech earnings later. not what may be some of you expected on the bullish side. wow have you had a rally already this year. a move of 17% on the nasdaq. a casual move higher on the s&p 500 year to date. tom: you will have dan ives later on, the southside is massaging the duration of this carnage. you mentioned earlier all of a sudden, there is a mystery.

there is this new mystery about the cloud, but other than that, it is pandemic-y, covid-y. jonathan: there was a massive expansion in the pandemic. apple did not have the massive expansion. cuts have been elsewhere. we have seen that in methow. we have seen a year of efficiency in facebook. on market -- bond market, two year yield up by 4% on a ten-year year, unchanged. finishing on foreign-exchange euro-dollar, chairman powell sounding like president lagarde. we've got more work to do. it is premature to start. he knows it is not over. what did governor bailey say yesterday? too early to declare victory. at the same time, things like the disinflationary process has started? and president lagarde says the balance of risks in inflation have become -- >> i am going to -- these guys

are institutions. the number one thing is credibility. i am going to cut them slack. brim awaits --abramowitz, fire up the cam. lisa: [laughter] we knew this would happen. we get to peek inflation and pass that, that seems to be the case. in the united states. is the market ahead of the fed? is the market racing to the worsening -- what is the expression? please help me. in all seriousness, they are getting ahead of themselves in terms of how far inflation will go down. will this market get a reality shock it inflation does not go down from 3% to anything lower? jonathan: from my perspective it is not about cutting slack or having a go at them. i am focused on the new information. i do not care about the old stuff on repeat. i care about the new stuff. we got new stuff from them in the past couple of days.

now, it is over to your own personal forecast. where do you see the data going? that is up to you. chairman powell saying, i do not care about your foe cast -- forecast. what is wrong with that? you can have a disagreement with the fed on their forecast and have your own. what is interesting for me right now, you can believe in a soft landing i equities, all that good stuff, great. you can believe in the hard landing story but be thinking about doing the same thing. you've got to work out if you believe in a hard landing story, when does the bad data start to hit? if you start pushing that out, is there a window to start ?pushing out risk lisa: michael hartnett who also came out with apocalyptic discussions of pushing it out in the pain trade sees stocks going higher from here. the momentum is carrying it higher. there does seem to be a feeling. the problem is, does this extend

the downturn on the others? jonathan: you know how this works. you get the short covering, the fear of missing out. the narrative starts to build on the back of the price action. the story changes. we are at that point where if you have not been in this rally, i need to get in this rally, you missed it. tom: the most important thing ron temple says, it is early february and we are chasing benchmarks. shall we continue forward? it is job day. mike mckee fired up to give you the data. the wage dynamic is going to be interesting. i know you want to talk about what we are expecting. jonathan: we are expecting 189,000. city, 305,000. then you've got morgan stanley, jp, looking for something around 175,000. city is up there with 305,000 up there. tom: we get reached by sarah, we

will talk about the last mile in a moment. i've got to go to the jobs report today and see a survey of average hourly earnings coming in. what are the ramifications to you and wells fargo if we get a more quiet sent inflation growth of average hourly earnings? >> if we get a softer average hourly earnings print, that is going to increase the soft landing prospects we have seen picked up recently, given that the fed is still hyper focused on inflation, but particularly that inflationary element coming from the labor market. we could see further softening there. tom: if we see that, should i igoogle? sarah: [laughter] i will leave that up to our equity analysts. tom: continue on wage disinflation. what is your call? sarah: i think we will see some moderation further ahead as we get further past the extremes of the reopening, the job

reshuffling that we have seen. i think it remains to be seen how quickly, if at all, we get back to levels i think the fed will deem consistent with their 2% inflation goals. ultimately, we are looking at incredibly tight labor markets. you see that with the unemployment rate, a low level of jobless claims. it goes back to that idea of, we have made progress, but given that last little bit of inflation wrung out is going to be the hardest and likely the most painful part of the labor market process of correction which could lead to job losses. lisa: john did a great job outlining new information the fed and ecb meetings this week, they seem to be shifting their tone to perhaps seeing the risks were more balanced. have you shifted your view of the response function of central banks? we are now fully passed the peak tightening phase and heading into rapidly approaching easing cycle. sarah: i think we have seen the

fed get more constructive on the outlook. we saw that with the multiple mentions of the disinflationary process starting and the acknowledgment there. i think they are very guarded given the fact inflation still remains too high and that they have been fooled once by how quickly inflation would come down. i think we are seeing fed trying to keep its optionality open. i think what we have seen, a tilt towards may be less tightening and may be slightly higher prospects of pulling off that soft landing. lisa: what kind of numbers particularly when it comes to unemployment would shock you in terms of your understanding of how quickly things were disinflation? sarah: we have seen jobs numbers come down gradually over the back half of the year. now, we are going to get encz microvision's, the new seasonals. that might alter the most recent path and momentum. in terms of what we might have to get the fed's attention and become sweat, it is somewhere

below 100,000. if you look at the site apply -- supply dynamics, it would probably be less than that to keep the unemployment rate constant. there is altitude to lose before the fed gets worried about the state of the jobs market. tom: how do you explain claims? i think i can speak for mr. mckee and say we have never seen it. how do you explain drew madison at metlife binds weekly -- weekly claims important. how do you explain something i have never seen? sarah: it does speak to the fact that ultimately we are in still a tight supply spot. businesses are cautious to lay off workers on that. we have seen a lot of big household names announced layoffs. overall, we are at a very low level of layoffs. if you look at the jolts data, it shows layoffs remain historically low. with the claims number, some might be influenced with

difficult seasonals we have this time of year. the fact maybe recently laid off employees may not be filing because they would forgo their severance. if you look at that volatility, they are pointing to what is still a very shot jobs market. lisa: last year, people were talking about the improbability of a soft landing and threading a needle that was basically impossible for the federal sir. now we are looking at a probable soft landing getting priced into the market. what is your probability and how has it shifted?to a soft landing sarah: we still think a recession is more likely than not. we are expecting that. we will probably see the broader, widespread weakness in the back half of the year. we could be looking at a negative gdp print in the first quarter. i think so much of this comes down to the fact we are still -- there are issues on the supply front when it comes to labor and that is a huge key to the soft landing prospect.

not only are you getting goods disinflation, housing disinflation, but whether we get those wage pressures coming down in a benign way where you have employers able to fill positions but not have the cost pressure be so great. you have consumers needing a paycheck and going and spending it and propping up demand for other businesses. jonathan: sarah, this was great as always. calling that term on the back end of next year, the final mark of that inflation push and how much harder that might be if they get down to 4%. tom: she codified that. we've got -- coming up with the curve inversion. it goes to cable tv and getting in that last mile, that move. i do not know what those numbers are. is it 4.9%? is that different than 5.1%? i am guessing 3.9% is way different than 4.1% top line. jonathan: you mentioned -- on

job claims. that is stunning. tom: this is one of our best people, michael mcdonough. jonathan: i thought you were going to say michael bloomberg. also one of our best people. lisa: [laughter] jonathan: [laughter] tom: what i would say here, mcdonough has important insight. the people he knows in tech are getting long severances. they are applying for unemployment, getting immediate contractor work. not playing foosball. they are getting there. mcdonough says, this is not layoffs at walmart. jonathan: mike mckee has made this point. ultimately, we've got to wait to see if this shows up in claims or whether people transition from one and walk into a job somewhere else. lisa: and what you are seeing in other industries.

service industries more broadly, and a lot of companies are not laying off workers because they are concerned about getting them back when times revived just like their experience when they got burned during the pandemic. a lot of companies would rather see margin compression now and keep their work or's is bigger than they otherwise would. tom: can i talk the unspeakable? 722 at google. they are going to go, the world has changed. he is going to turn down for 87 at some other firm? no. lisa: [laughter] tom: there is a lot of people getting laid off at those income points. jonathan: there was a phrase, i wish i remember who it was from. you cannot fire what you could not hire. i think that is true of the pandemic and the years since. alexander of morgan stanley, about 15 minutes away. lisa: keeping you up-to-date with news from around the world

with the first word i am lisa mateo. u.s. jobs report may show payrolls rose last month by the smallest amount in two years. estimates say the economy added 189 thousand jobs in january. wages are expected to keep rising and jobless rate is near a five decade low. all that is likely to stiffen the fed's resolve to keep rates elevated for some time. the jobs report comes out at 8:30 a.m. new york time. incoming president of the czech republic says there should be no limits on -- on military aid to ukraine except when it comes to nuclear weapons. >> ukraine can defeat russia on ukrainian soil. that means pressure on russian forces out of ukraine and restore integrity and full sovereignty of ukraine. i believe with our support, this goal is achievable and we should strive to achieve that goal

because it is principal. lisa: he is a retired nato general who takes office in march. next week for the first time in three years, the border between hong kong and mainland china will complete a ribbon. that is designed to revive the city's role as the business gateway into the country. daily quotas and covid testing requirements will be dropped. hong kong will -- on -- will allow unvaccinated travelers to enter the city. powered by more than 2,700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

>> we the new nasdaq. the way the nasdaq performed in the 1980's and 1990's is where we went as a nation, ok, look

through that now. you will not find the kind of disruptive innovation. it is not dominate those indexes. jonathan: kathy woods, the new nasdaq. lisa: [laughter] jonathan: tk is the new dow. tom: my 10 year is up. lisa: she is saying, the fed should drop rate so she can encourage innovation. i was speaking with a venture-capital head and he was saying higher rates will increase innovation because money will go to the founders that actually are able. jonathan: the only good ideas in history came when we had rates at 0% in q. week nothing to do with the valuation of stocks that might be in the new nasdaq. no. not at all. tk, are you ready to weigh in or do you want to avoid? tom: i want to avoid. i've got a nice ride a karma going on. -- friday karma. jonathan: cool, nice.

tom: let's move on. i am sorry, john. i'm stepping on you. jonathan: what are we talking about? tom: a woman stopped me in the street last night. she asked me, do you and pharaoh top when you are not on camera -- ferro talk when you are not on camera? jonathan: i get asked that all the time. [laughter] amazon, apple, alphabet posting showing sale softening, consumer demand weaker and expected online advertising growth not coming in in a way some anticipated. equity futures on the back of that, down. looking at individual names, apple off by 2.7%. amazon off by 5%. i have got to do this again. give me a second. i will pull it up on the bloomberg. you've got to look at where we were yesterday on the close. i will bring up apple, up 3.7%. alphabet was up 7% at the close

yesterday. compare and contrast where we finished yesterday with where we are now. some of those names are still up. tom: heaven forbid he put it in perspective. they ended their tech analysis of apple. the volatility you mentioned, it is back to dot, dot, dot where it was yesterday. we will get perspective of this away from financials. i take issue with the foreign-exchange delta, it was huge. apple painted a more constructive picture. dan ives will be with jon ferro in the 9:00 hour. right now, alex webb joining us. alex, with the hype and the product stuff and all of that, frame the level of crisis you see among the big four. we go to cash free flow in a moment. what is the -- does the webb

crisis meter look like on big tech? alex: it is a return to the mean. we got a good rewind, we saw facebook trading less than 10 times forward earnings. we had apple in the high 20's. google in the high teens. they are all tightening, coming towards each other. some of these companies clearly the past decade or so did not need to worry about how much money they were spending. they were growing, gangbusters growth. now, a little more focus on that. -- said exclusively, we do not need to worry about how much money we are spending. now, we deal. that is the difference with what we saw with earnings yesterday compared to meta-a few days ago. needing to actually focus on how much money they are spending. it said total expense -- we didn't see that rhetoric coming out. tom: john emailed matt 2:00 a.m. this morning, do a or woodstock

free cash flow study. i went one year forward on the bloomberg intelligence modeling of the companies. good morning, scott galloway who i am stealing this from. they have a some free cash flow of a quarter of a trillion dollars. add them all up, 255 billion dollars. apple leading the way. the next four stocks, worn buffet, exxon and other tech companies is $50 billion -- $57 billion. i think the drop off, the unique this of these companies -- uniqueness of these companies is not understood a quarter of a trillion of a dollars versus $57 billion which is frankly mostly exxon. they stand alone, don't day? alex: when we talk about facebook, the way they are changing the culture, they announced another $40 billion of buybacks. they have the ability to drop huge amounts of capital whether

it be stock, technology. the one thing that raises a challenge is m&a. microsoft has tried a few things. there is a deal apple tends to steer away from massive transformational acquisitions. they have a huge amount of capital. how you allocate it, you have to think creatively how to do so given headwinds they are facing. lisa: there has been a lot of elon musk over at twitter and what he has done with firing and disruption there. how much under the hood in these earnings reports from the likes of alphabet, is there a not to what he did saying perhaps we can strip back a lot of the people we have and implement artificial intelligence around the edges to do this more efficiently? alex: there was massive hiring. the most telling is when you look at the evolution of revenue per employee. when you look at particularly amazon or facebook, you saw revenue per employee shrank.

they were hiring people more quickly than they were able to grow revenue. despite the stellar number some were able to post during the lockdowns, actually, they appeared to have over hired. that is less the case at apple or microsoft then at amazon and facebook. twitter is a company that is not a big company in the grand scheme of things. huge impact, huge effect on democracy amongst other things. i am thinking in u.k. terms. it's revenue is less than british telecom's profit. that means it has far fewer employees. the impact of cuts at twitter are greater than the impact of cuts and these other companies. it is tough for the people on the other end of that. but, the cuts being made by these companies is quite small in comparison to what is happening at twitter. lisa: you said they are not growing at the same pace where they can keep hiring at this dramatic fashion. what does it say about where the

valuations are if we are not in an era of free money anymore? there are still behemoths and cash cows. our there valuations justified if that growth if cloud computing is not accelerating to the same degree if it has the potential of something different? alex: that is why you have to differentiate between these companies. amazon historically has traded a large premium because the expectation always was if they twist the spigot a little a bit -- a little bit, they can move in a profitable space. during the lockdown, they expanded in opacity and headcount. it became harder to reduce spend and move towards profit. with the cloud, it is still growing and faster than any of these other businesses. the pace of that growth is tempering. an interesting wrinkle in this, some of the chip companies --

reported recently they make chips for the service. the numbers were not that all disappointing. there is a suspicion the companies are doing more, building their own servers, not barreling as fast because there process is they want to keep to themselves. it will be interesting to see if that story holds true, it bears out over the years ahead. there is a wrinkle amidst all of that. jonathan: interesting, thanks for that. equity softer on the back of some of the stories. down .7% on the s&p. we are about an hour and 35 minutes away from payrolls in the united states of america. we are looking something around 200 k. estimates are in. you are whispering. mike mckee is going to bring us the whisper. whisper it. the president is intuit. he uses it to make a point. lisa: [whispering]

tom: you do one over the square root of whatever, except with payrolls, the square root is $150 million plus or minus. it is age i norma's number. what that means, the standard era around guesstimate of 189,000, seriously? jonathan: you called it a guesstimate. it is really educated people. throwing darts. lisa: i get these emails, the polling. tom: it is a joke. jonathan: you do not provide guesses in those polls? you are asked about where you think inflation is going. tom: i am waiting by the phone. jonathan: i wouldn't mind a call from you, mitch. inflation has gone to five. he didn't ask you anything. they just want a number. do they give you a range? lisa: that is a good question.

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>> markets should take notice. >> when you look at the market reaction today i think what they are telling us is that string of hawkish meetings is over. >> it is also about what is going on in the rest of the world. >> all central banks are going to be in a similar condition. >> it is when the labor market breaks we really struggle. announcer: this is "bloomberg surveillance" with jonathan jonathan ferro, tom keene

and lisa abramowicz. jonathan: live this morning, good morning for our audience worldwide. this is "bloomberg surveillance" with tom keene, lisa abramowicz and jonathan ferro. the story of the year so far is a monster rally to start 2023. tk, we are looking for 189,000. tom: what i am going to look for in the reading this weekend is do we have a change in volatility where we are getting clarity out of three central banks? i think it is important not just to look at the fed where they are saying, disinflation is in trend. does that lead to a new lower volatility regime? that is the mathiness of where we are. jonathan: how do you respond to favorable data without easing financial conditions? that has been the challenge.

when chairman powell talks about the disinflationary story, clearly, that is new information the market will pick up on. lisa: the question is do they care? do they care the market is rising? do they care financial conditions are easing? it seems he did not care enough to push back which means they do not think it is significant, or it will not make that big of a difference. or they were unintending this to be the case and messed up. tom: they reaffirmed data dependency. maybe the bank of england is in that group as well, but the data this morning, we are going to see that and valentine's day with that cpi report. jonathan: before we get that in washington, david rubenstein and chair powell, if you really cared about how we responded, that is the opportunity. that is the stage to say something. lisa: what he could say is the

market is not factoring in the pain they think is required to get to inflation. perhaps the market is not paying attention to the deceleration in growth. there is a push-pole. disinflation is happening and growth was going up. that is the green light for the market. jonathan: even if it is a hard landing, it will look like a soft landing first. it will look soft before it is hard. tom: super restrictive. jonathan: interesting conversation this week. tom: he is saying, we are there. he is not alone in that. jonathan: equities down 0.6%, 0.7%. going into payroll in 90 minutes. yield is 3.3849. tom: i have a more accommodative condition. the vix under 19 but this screen is going to light up on

payrolls, much more on wage dynamics. hourly wage earnings is what i am looking at. lisa: i am focusing on the same thing as tom. is the payrolls report north of 300,000? the question is whether we see the wage gains decelerate to the degree people are expecting. if not, does that make the market rethink the shift in fed speak? labor secretary marty walsh joining bloomberg television with jonathan ferro. curious to see the view on labor amid a wage increase people are trying to fight. how does he talk about the labor disruptions even overseas and how that applies to the labor force in the united states? we do get ism services data at 10:00 and i am watching this closely. there is the potential for re-acceleration of services. we saw ongoing contraction in

the services sector. it could go the other direction which really speaks to this bifurcation in the economy. on one hand contraction in sectors, on the other, resilience, pushing inflation higher than the fed would like to see it. jonathan: thank you. resilience in the labor market the last few months. people anticipating that weakness. it has not come around. tom: no. complete failure and a major shout out to neil dutta who joins us later. james glassman was on fire yesterday with jp morgan. he says people are talking small business pains. the reality is they are looking for the next employee. jonathan: about an hour and 10 minutes from now. right now, priya misra, td securities. thank you for being with us. you had three calls. raise through 5%, yield curve inverted all year, and recession back half of the year. are those still the three calls? priya: yes.

i think the fed -- the reaction of the fed has changed a little bit. there urgency to hike, there urgency to take rates higher, i think that is less. they are more convinced of a soft landing, we are not. the labor market data has always lagged. the service sector is slowing but will slow more the second half of the year. we are still looking for recession. i think the fed right now is saying we don't know. we don't know if this immaculate disinflation will continue. there has been disinflation clearly. our view for that to get to 2% you are going to need the pain and the labor market. that is where the fed is saying we don't know. they are going to hike 25. they are going to live meeting by meeting. another 25 in march and may. another in june if inflation does not continue to decline at

the same pace. there is risk of them going up to 5.5% and staying there all year. we need to get back to 2%. the economy is going to slow down. we are looking for that recession still but i have to say the case of a soft landing is higher today. the fed is banking on that. tom: the difference in yield between the two-year and the 10-year. what is your two-year study? priya: i think the two-year is about terminal rate and what happens after. it is going to come down to inflation. i have clients saying, why would the fed cut this year? if inflation is at 2%, the fed is likely to cut. our view is inflation is going to get sticky. it is easy to get that first couple of percentage point decline. for inflation to get to 2% we

need wages around 3%. if inflation is going to be sticky, the fed is going to struggle to cut rates. that two-year is not only the endpoint but everything is pricing into hundred basis points of cuts between the middle of this year and two years out. what happens to that? it is going to be a function of inflation. our view is the fed will hold still. they are not going to cut rates until they see wages close to 3%, until they see pce close to 2%. lisa: the exhaustion and everybody's voices noticeable. you said this is the most confused fed and markets you have ever seen. where do you get conviction in any trade at a moment like this? priya: it is hard. i think you have to keep risk positions light. i think the fed has stepped down. volatility will be lower but where is the endpoint? what did they do after that?

all of that is up in the air. we are going to have to go back to models and a lot of people, including the fed, have less faith in models. the phillips curve, does it exist? why has inflation declined? we are looking more at our models. how do you get service inflation down with wages staying high? how do you get wages to come down? does the unemployment rate stay here? we are going back to econ 101, but for the market that has been used to forward guidance from the fed, we are getting none. the market is going to be whippy . you have to have long-duration but have to be nimble around it. interest rates in the near term can rise because you talked about ism services. the consumer is still strong. consumption of services is strong. we are trading more tactically in the near term and having an

eye on that strategic recession. i think you have to play it -- you have to be nimble because the fed is noble. jonathan: wonderful to get your view. still looking for rates above 5%. still looking for a recession in the back half of this year and the priya misra call of the year, curve in version through the whole of 2023. tom: the duration is important. if you take that chart back pre-volcker, what she is calling for his unusual. i am watching new york city real estate. i will not go into it right now. jonathan: please do. tom: it is really ugly. nick bloom at stanford is one of our best. he owns a high ground and works from home. he is really, really looking at the math. the average has come down, the number of days worked from home.

it stopped and it stopped at 2.3 days. jonathan: is that the new normal? tom: you look at the chart and yeah, it says new normal. jonathan: do two from home? tom: there is a surveillance aspect to it. we are jaded on this. we are not thinking like most people. jonathan: not at all because we have to be in the studio. tom: wednesday sleeping here? jonathan: that did not work out. [laughter] lisa: that was horrible. tom: team bonding. lisa jumped into kumbaya and i teared up. jonathan: singing at the bar? [laughter] lisa: there was a fake fire in the middle here. jonathan: at camp fire. [laughter] [crosstalk] tom: we all go kumbaya.

jonathan: what was that thing president had with the saudis? lisa: when things were going well it turned white. tom: did it change colors? lisa: yeah. [laughter] tom: annmarie has one in her living room. jonathan: we are done. [laughter] jonathan: up next, a surveillance balloon -- tom: are we revisiting that again? jonathan: the line of the morning from the chinese government, we are gathering and verifying the facts. we hope the relevant parties will handle the matter in a coolheaded way. the surveillance balloon drifts across the country. [laughter] that's next. this is bloomberg. ♪ >> keeping you up-to-date with news from around the world with

the first word. i am lisa mateo. the u.s. labor market continued to moderate at the start of the year. wage growth and historically low jobless rate are expected to keep the fed from lowering interest rates for some time. today's jobs report will show payrolls rose 189,000 in january. it is one of the most dismal outlooks produced by the bank of england. the central bank says workforce dropouts have become an economic deadweight and they have left the u.k. facing its bleakest outlook in generations. the boe does not see pre-pandemic levels returning until 2026. shares of apple down after the company reported its worst holiday performance in four years. supply chain issues and a softening economy hurt iphone sales. revenue fell 5.5% in december. apple's biggest sales period of the year. tim cook still sees signs of a rebound in china. shares of amazon lower after the company announced consumer

demand is slumping and sales in its cloud computing division will slow. web services revenue fell short of estimates. ceo andy jassy says his number one priority is to cut costs. ford is blaming poor execution and continued supply shortages for fourth quarter profits that missed estimates. the company is struggling to balance the transition to electric cars from conventional vehicles. as a result, ford will ramp up cost-saving efforts. job cuts will be part of that too. global news 24 hours a day on air and on quicktake by bloomberg. powered by more than 2700 journalists and analysts in over 120 countries. i am lisa mateo. this is bloomberg. ♪

>> i think kevin mccarthy is more important than powell as far as the easing cycle goes. that is because of the debt ceiling. you look at the last two fiscal tightening around the debt ceiling, this could cause recession. all the market is doing is applying morbidity to fiscal tightening this year and that is why the ecb -- [indiscernible] jonathan: who would have thought mccarthy was more important than powell. a deep sigh on deutsche bank.

tom: what do we know about the meeting? it is bizarre. jonathan: the story today, we talk about the story today. there is a spy balloon, a chinese surveillance balloon over sensitive nuclear sites in the western united states. it is injecting strain into the relationship. the pictures are clear. just before this planned beijing visit by secretary blinken. china hope to the relevant parties would handle the manner in a coolheaded way. [laughter] it is kind of unreal. politics is often about the objects. we are told this is not the first time, but for many people, this is the first time they are seeing it. because of the optics around that it makes it difficult for blinken to go to beijing. what is ridiculous about that is

it is happened before and blinken was still going to go beijing. that tells you politics comes down to one thing -- optics. lisa: especially when we have not heard tony blinken say he will cave in people pressures him. it is fascinating that china is saying, we hope cooler heads will prevail given that they are one of the parties. [laughter] there is a dissonance between the administration politically and what is going on in washington, d c, the business community and the rest of the community that is dependent on china. tom: can we do a balloon surveillance correction? i implied earlier it came across that it was a party balloon at the waldorf-astoria in shanghai and came across the pacific, which is what an amateur like me would think. the new york times reports china

to the aleutian islands of alaska, down through northwest canada, over malmstrom air force base in montana. is this thing supposed to go over america? annmarie hordern joins right now on this and i am glad i got the map straightened out. is this one big accident? can't we just say to china, did you do this on purpose? annmarie: these are the questions the administration -- i was aware of the flightpath because the canadians said they saw this surveillance balloon and are looking into "another incident." we are waiting on more details of that potential second incident the canadians are tracking. but these are the questions the administration is asking the chinese, clearly. to jon's point, the question is whether secretary blinken goes on this trip. in hours he is set to go on this trip. what i woke up thinking after a

number of phone calls and emails last night is, is this a trial balloon from beijing? [laughter] you can see how the u.s. reacts, honestly, to see how the u.s. reacts and, as jon said, will cool heads prevail? the u.s. wants some lines of communication open and put a floor on this relationship. or is this messy planning? did xi jinping sign off on this for this important trip -- remember, secretary of state has not visited beijing since october 2018. is this messy planning on behalf of beijing? jonathan: we could play around with us all day. i am trying to ask a serious question. does this pose a physical threat? does it pose an intelligence threat in any way, shape or form? annmarie: according to the u.s. defense department, it does not. especially over montana where it

was spotted and harm in terms of intelligence. but the u.s. has deemed it would be worth it to shoot it down because of the debris they could hurt people. tom: have we confirmed there are optics on board? seriously, is there legitimate imaging on board? annmarie: the u.s. believes this is a surveillance balloon. it is not just a floating balloon. it would have had some technology but again, the chinese are already doing this with low level satellites and there are things called drones, which most countries are using. that is why this is so particular. why send a surveillance balloon when you can do the same, and probably are, with low level drones? lisa: that was when i was going to say. don't countries spy on each other? china spies on us all the time, we spy on china and that is how it goes? annmarie: yeah. the chinese answer will be they

have been complaining about u.s. spying whether it is spy planes, spy ships, over the past decade or so. for individuals in the government this is probably, you know, nothing surprising but it has taken the public by storm in the optics are pretty terrible given the fact secretary blinken is supposed to make this trip, they were supposed to have a warming of ties, but then you have a tremendous amount of pushback and you are seeing it from the likes of speaker mccarthy, representative gallagher about why even having these overtures with china. lisa: what is the basis of warmer ties other than economic ones? annmarie: there is the climate talks, that is economic/environmental. there is also the fact there has

been a softer communication between beijing and washington when it comes to the military communications. bloomberg reported a month or two ago since nancy pelosi, the former speaker, made that trip to taiwan that those communications have really been much more muted than they had been in the past. it is not just economic, it is also military ties. we had admiral kirby talking about this is the most consequential bilateral relationship for the united states and the world. when you talk to allies of the u.s. they want to see the united states speaking with china. they do not want this to become fraught. they want to say, at least they are communicating to avoid escalation of this relationship, and potentially conflict, which we saw this week or last week. the memo from the air force general in the pentagon talking

about potential conflict between beijing and washington as soon 2025. jonathan: remind me, when is blinken set to leave? annmarie: he will be there by monday. sometime over the weekend. this is a huge question they have to answer and i imagine we will get an answer. jonathan: amazing. thank you. tom: thank you, annmarie. we are making jokes but this is the story of our relationship with china. i'm going to go back before 1947. there is distrust. which america and, frankly, a good part of asia has had to deal with for decades. jonathan: there is a difference between making a relationship better and stopping it from getting worse. i think the effort of blinken going over and the administration said it, it was about putting the floor on the relationship. that gets harder going into the weekend. tom: school of thought of diplomacy. you have got to show up.

there was a dirth of that. the critics of the trump administration would say that. jonathan: will he show up? lisa: why send something so obvious? it is not subtle. you think they just accidentally did that for a party and it flew to the u.s.? tom: maybe it was supposed to go over fairbanks, alaska. maybe helsinki. people go over the north pole. they do not fly shanghai -- it went over the aleutian islands in northwest canada. where does it go now? miami? jonathan: think it might be an accident? tom: i don't know. where is it going next? stay tuned. jonathan: payroll is 60 minutes away. [laughter] the carbon intensity of the fuels that keep things moving. today, we're producing renewable diesel that can be used in existing diesel tanks. and we're committed to increasing our renewable fuels production.

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jonathan: equities lower 0.7% on the s&p. the nasdaq flying. we are down 1.2%. lisa will run through the stock names after the close yesterday. tech facing trouble after facing a fantastic year so far. the bond market looks like this. the two-year close to breaking 4% yesterday. yields plunging lower to 3.39. the euro-dollar looks like this. chairman powell says the disinflationary process has

started. president lagarde says risks are becoming more balanced. the euro-dollar is positive 0.6%. lisa: how much more oxygen is there in that? having priced and the best news we could? jonathan: china reopening in the mix. i heard from citi yesterday that says any pullback by the euro on the china reopening story -- i find it so difficult to forecast european growth. i do not know what is going to happen with the war. i do not know how difficult the next winter is going to be. i think people are optimistic based on this winter and how much growth do we ultimately import from china? lisa: uncertainty has been pervading the earnings we have seen. we went over amazon, apple and alphabet earlier. the bifurcated nature of a world where money is not free. nordstrom shares up 26%.

meme stock investors have built a large stake. activist investing is much more present in some of the tape now than it used to be as people look at where valuations have opened up. ford is consolidation of market share. gm came out with good numbers. stocks surged. ford shares down 6.6%. this to me raises the question, how much do we continue to see consolidation among the few winners even as growing numbers of others become the losers? qualcomm down by 3.2%. showing some potential new businesses picking up but you are seeing this bifurcation within the chip sector with respect to taiwan and samsung getting market share. the rest of them kind of losing and trying to find out what the new business model is going to look like. how much is this endemic of an

environment where money is not free anymore? jonathan: i think it is true of a lot of tech firms. which is why the earnings call talking about ai. ai, ai as we look at deceleration in the cloud business. tom: they are hardwired to do that. there has to be winning applications of ai, but what is the other thing we are doing? jonathan: chatgbt. tom: it is all the rage. jonathan: one hour away from the payrolls report. 190,000. ellen zetner looking for a pause in march from the federal reserve. tom: it is an outlier call from zetner of morgan stanley. she cut her teeth with amazing consumer analysis years ago and has moved on to a bigger picture of the market. she joins us this morning. i am going to go narrow.

adp showed wage disinflation and moves over to hourly average earnings. the shock could be wage disinflation. is that what the market is trying to get in front of and celebrate? ellen: i think that is where the market's focus should be. the headline number is going to be wrought with revisions. the wage growth is more important. it would be nice to see some downside surprise or disinflation creep in, in wages. average hourly earnings is higher frequency and we need something to focus on. but i think the point around adp is important. you also have linkedin, indeed, they have been coming out with their own monthly wage reports

and it shows wage growth is high, but the rates of growth have peaked. tom: bring that to another outlier. liz ann sonders talking about housing. with all of your national contacts are using rents and homeownership inflation again? ellen: we have been seeing the on the ground real data on rents has been declining since the fourth quarter. tom: give me a number. ellen: effective rents are different than what is in the cpi but you are talking 12% growth coming down to 7% or lower. cpi, we want to see these extraordinary rates of rental growth that are closer to around 30%, 4% -- 3%, 4% come down to around 5% or 6%. but the peak is in.

we just need to see more declines. we have had evidence on the ground from different sources for quite some time that wages would be coming down, rental prices would be coming down and it has taken time for it to show up in the government data. will it show up in a bigger way? i think so. but pinpointing the exact month things start to snowball is difficult. jonathan: super difficult. one thing we have all heard on this program is to get inflation back to target, we need to feel pain. chair powell said that in jackson hole. we look at unemployment and claims and ask, where's the pain? what does that tell you, 183,000 jobless claims. how much signal is there for you? ellen: companies have been telling us they are going to hoard labor. it took so long to right size payrolls. in this downturn in the labor

market there is less jobs to let go. it is more that hiring will slow. you are seeing that and jobless claims are not rising. that makes it more difficult to estimate monthly change in payrolls because we are not letting people go. that is usually the most powerful indicator forecasting monthly reports. but companies are not laying off. we can set tech aside. that was a special case where they over hired during covid but broadly we are not seeing laughs. it comes down to how slow will hiring be echo jonathan: does that make it harder for the fed? ellen: i do not think it makes it more difficult. job switchers have declined. the economic environment is too uncertain for people to keep

switching jobs and that is where the wage gains were pushed up the most. i think it is more churn helping wage gains slow. what i liked about the press conference this week -- and i believe it was your mike mckee that asked this -- why have you been able -- why are we seeing disinflation? why are we seeing wage growth has peaked? and yet, the unemployment rate is low. i don't know if larry summers is wringing his hands because he was saying you're going to have to do significant damage to the labor market to get inflation to slow, and yet inflation is slowing. i think that is an excellent outcome for the fed. lisa: perhaps when he talks about the minute of economics it was successful. if you're talking about tightening a financial conditions, it was not a good press conference.

doesn't matter when it comes to the financial economy that it pushes the fed further away from their goal? ellen: good question and they are focused on financial conditions. if you are a policymaker and look at financial conditions, you look at the unemployment rate that is still low, you feel you can go further with the policy rate and markets can withstand that. but here is what i think they should be focused on. financial conditions had an extraordinary run of tightening through october of last year. that is what is impacting the economy now where we are tracking 0.2% for this quarter. the easing we see since october will be more of what supports growth in the back half of the year and will help the market grab onto that soft landing narrative we have been pushing for so long. i think that is how we should look at it and they should not be so disappointed financial conditions have remained easy. lisa: which might be why we are

knocking to see big push back. what is the difference between disinflation and getting back to 2%? ellen: the speed at which we get back down. disinflation is still growing but growing slower. the fed's on forecast, they believe it is going to take time to get back to 2%. disinflation will get us there. i think what we are seeing in market pricing is based on the latest inflation data, maybe we are going to get down or see a faster pace of disinflation and get to the fed's goal faster than they think. that is what the market is betting on. tom: morgan stanley's richard berner, evercore has the same idea. hyman is modeling sub 3%. lisa's question i thought was dead on about the nature of disinflation coming down. is this like any other disinflationary cycle in that we completely underestimate the rate of change to get to two

percentage point inflation? ellen: well, i would not say every cycle. inflation is typically slow-moving. it is pretty easy to forecast the disinflation that continues even after there is a downturn in the economy. this time we have to be humble because just as we missed it on the way up and it kept accelerating beyond expectations, you could have that happen in reverse on the way down. something chair powell talked about was the goods deflation where goods prices are in decline. if you think that is temporary, he used the word transitory again. god for bid we use that word again. but you want to look at everything outside of that and say, take away the special factors. are we getting a reversal of covid related factors? or are we getting true disinflation more broadly? i think we are getting true disinflation more broadly but

that is not as pronounced as the covid factors coming off right now. jonathan: chairman powell speaks next week. is there any cleanup on aisle 4200 on the s&p? any cleanup whatsoever? ellen: i do not think there is anything there. he can continue to harp on financial conditions being too easy, but the market is pricing in a rate hike. the fed will deliver a march rate hike so where's the pushback? jonathan: great to have you with us as always. your payrolls report around the corner. next up, about 30 minutes from now, neil dutta of renaissance macro with the constructive view on the economy. it is going to pick up for neil and the fed that might be pulling back prematurely. that is coming up. ♪ ritika: keeping you up-to-date with the first word, i am lisa mateo. the u.s. jobs report shows

payroll rose by the least amount in two years. the economy added 188,000 jobs in january but the jobless rate is there a five decade low. that is likely to stick with the fed's resolve to keep elevated. the u.s. will send ukraine a new ground launch is part of the newest military aid package. it is made by boeing and will not be deployed in ukraine anytime soon. it will take about nine months for the first deliveries once the air force issues a contract. next week for the first time in three years the border between hong kong and mainland china will completely reopen. that is designed to revive the city's rolled as the business gateway into the country. daily quotas and covid testing will be dropped. hong kong will also allow un vaccinated travelers to enter the country.

shares of nordstrom soaring. the meme stock investor ryan cohen has built a sizable stake in the chain. the aims to replace at least one of the company's board members. last month, nordstrom slashed sales projections. global news 24 hours a day on air and on quicktake by bloomberg. powered by more than 2700 journalists and analysts in over 120 countries. i am lisa mateo. this is bloomberg. ♪

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hawkish meetings is over. jonathan: it is over. chief currency strategy at citigroup, that is abraham's view, not mine. going into payrolls 44 minutes away in new york city. we have a bond market look looks like this. unchanged in the bond market and basically unchanged in the euro-dollar. waiting for german cpi next week. maybe next week you might get that release of german inflation. but the take away is the fed is lined up, the ecb is lined up, they are seeing a trend they can enjoy. they do not know if it martelly materializes, but they are trying -- they have more work to do. tom: what then evidence -- ben

evans wrote this morning, our team has rallied to give you perspective. we will speak with neil dutta of renaissance capital. dutta is the optimist, zetner sets the fed below 5%. in the middle is anna wong who had a historic call for bloomberg economics 12 months ago. saying 5% and above. anna wong joins us now. the thought i heard in washington was you falling off your chair in the middle of the press conference. how did you with your framework of the fed to 5% react to the powell presser and the market reaction to it? anna: i think powell made the mistake of behaving too much like an economist. i think the substance he delivered was hawkish.

he talked about how the super court inflation services has not shown any sign of disinflation, which is what we are seeing. it is steady at 4%. he talked about there is more risk of being too little than too much. what the market heard was the tone, the lack of conviction in what he said. i think my framework, our framework, has always been we estimate a reaction function of the fed. i think powell confirmed their reaction function has not changed. it is really the input into that reaction function. markets thinks the inflation is falling to below 2% and the fed does not. they have the core pce going to 5% or above. i think even maintaining that

reaction function the fed has, if unemployment rates should go to 5% at the end of the year, according to that function, the fed will cut. tom: what is critical is in the jobs report we see in less than an hour. you are going to look at the wage dynamic. can you adjust your terminal rates down if we get a wage dynamic this morning? anna: definitely not. we have seen in the past couple of months the data on average hourly earnings is extremely noisy, and on top of that they are revising the seasonal adjustment factors. it is still up for a lot of revisions. we saw the november average hourly earnings rate was revised away. in the march meeting, the federal have two more cpi reports and by may they will

have another eci report. they will put a lot of weight on those but i think the significance of today's wage data would be how markets react to it. if it is slower than 0.3%, i think the market will extend the rally. lisa: let's connect the markets and the economy. we were speaking with ellen zetner of morgan stanley and asked whether the loosening in financial conditions on the heels of the powell presser will make any difference to the economy. she said maybe not because we have already seen enough tightening to really affect the change they would like to see. do you agree? anna: yeah, i would generally agree with that. i think what powell was seeing when he said financial conditions has tightened significantly was looking at the real yields. if inflation is falling faster

than nominal 10-treasury, from the fed's perspective, the real yield curve is about the same. that is what they are paying attention to, not to any financial condition index by bloomberg or goldman sachs. lisa: but this is important because we are saying, it was a mistake, he was too nuanced. and yet, you and ellen zetner say he reflected the economic thought as best he can. he does not know how it is going to play out. if the markets rally, that is their problem because it does not feedback on the economy to such a degree. if that is the case, does that mean they are not going to jump on the market unless the situation dramatically changes? anna: i think powell -- recall at some point he said they care about the broad financial conditions, not short-term financial conditions. i think if the fed's view inflation will stay high for a

while is true, ultimately, the fed will hold rates higher for longer and financial conditions will tighten, the rally will go away. that is kind of the contact setting the powell is in. if the markets are not to be right, the current rally would be justified and it could help him achieve a soft landing he wants. i think he is cavalier about financial conditions because it will naturally tighten if the fed's point of view turns out to be right. jonathan: anna wong, thank you as always. the difference between what an economist here's an what an investor hears. lisa: zetner totally different from wong, wong totally different from dutta. jonathan: there is a change from powell. jackson hold to where we are right now. tom: more data. jonathan: the meetings in

between. tom: china reopening. jonathan: he has become more balanced. don't you think? lisa: here is the key question. he might be moving more toward the markets than the markets is toward them. maybe underneath it he and other economists believe in the ellen zetner view where easy disinflation moving a little more quickly. jonathan: he had the opportunity to validate the december dots and did not take it. isn't there some information to take from that? lisa: i do wonder what the discussion was and i am curious to read the minutes. jonathan: same. lisa: but the minutes are going to be fascinating. tom: i read the minutes for the first time in my life. mike on twitter with a beautiful bramo chart. we have talked full faith in credits, i am talking equity

markets, full faith and credit. we have not talked about the land of bramo. mike, thank you for listening. those spreads are talking. lisa: this caught my attention. look at investment grade and high yields and this is the credit portion, the credit risk portion of the dynamic. contracting on investment grade to the lows going back to april of last year. you saw the biggest one-day decline going back to november of 2020. a massive bet on this belief in easier monetary policy and the potential boom you would see in credit. jonathan: 3.86 on spreads. tom: i guess it is related. lagarde yesterday had to enjoy nominal italian yield. jonathan: 40 basis point move? tom: explain why that is important to the american audience. jonathan: it is an easing of financial conditions because they believe after the next

meeting, 50 basis points, they might be done. maybe the federal reserve will be as well. what is crazy about this move in high yield is we started the year -- and i look forward to catching up with rick rieder around 9:00 a.m. eastern -- we had this beautiful fixed income breakfast buffet and everyone was ready to load up. juicy yields. one month later where has it gone? lisa: great question and you hear people reassessing the fed, and yet, the fear of missing out is present. people said recently the gains were in and then it gained more. what do you do with that? jonathan: fixed income even if it backs up will be another truckload of people ready to buy back in. lisa: that is why the payrolls report is important. jonathan: big risk as well through the next couple of quarters. 34 minutes away. neil dutta will balance things

out. [laughter] ♪

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>> real rate projection the market and fed has is it similar. >> there is going to be an

accelerated decline in inflation in the second half of the year. >> the jury is still out there that we can be complacent that inflation is on the way down all the way to target. >> the ecb has an inflation mandate and i think it is likely to reinforce that. they are still worried about inflation. >> what is clear at the ecb, having started later, still has some more room to go to the upside than the fed. >> this is "bloomberg surveillance." tom: good morning, everyone. jonathan ferro, lisa abramowicz, and jonathan ferro. three exhausting, fascinating days. we sum it up here in this hour. i'm going to go right to it. for me what matters is wage inflation reporting. jonathan: it is certainly been exhausting. it has been painful. tom: even cautious on this market. totally agree. jonathan: to set this out, impossible.

that is where the formal kicks in. payrolls, 29 minutes away. we are looking for a hundred and 99,000. it will come down to this, the income and information. lisa: at what point do people interpret the data as they wish? we have seen this again and again. we saw that from the meeting we heard from the federal reserve. some people took that as the dovish pivot everyone was looking for. jonathan: if you sprinkle in some hawkish language but give me something new, a splash of something different, that's what i'm going to pay attention to. that's what everyone is paying attention to. you cannot sit there in a news conference and said -- and say we think that this inflationary process has started and expect me to pay attention to, we've got more work to do. that is a shift. i'm going to go back to what england has said at standard chartered. it doesn't matter what i think about this. we have moved away from unconditional hawkish nest to conditional hawkish in us.

-- hawkishness. tom: -- or conditional data dependency. what i also see is earnings. i get the handwringing over tech, but as i stated earlier, the model on the terminal right now for the big four is $255 billion of free cash for generated by four big companies. i find the stock market angst ridiculous. lisa: cash flow is unassailable. they have incredible cash-producing skills. they dominate the economy. however, what have we priced in an terms of future growth -- based on zero rights that is not possible in an era that money costs something? tom: ellen zentner alluded to this. her call is pretty tepid. with the disinflation, which is

price out, yelled down, with the disinflation that is nasdaq 100 to the moon, is the idea nominal gdp comes in because the growth is not there and the inflation component comes down as well? jonathan: do you want the perfect quote? a window of opportunity when long-term interest rates typically fall prior to the magnitude of the slowdown being reflected in earnings estimates, this is the classic late-cycle period between the fed's last hike and the recession. do you want to know who that belongs to and where it is from? mike wilson, november. that reads almost exactly precisely a description of where we are right now. like, right now. i remember when mike put that out. you are aware he is bearish right now. when mike put it down it was leaning into the bear market rally of the moment. what we were asking is, how big is the window? there was a feeling that maybe in went to your-and.

it is still open right now. the work from november, i think, is appropriate to the moment we are in right now. there is a window of opportunity when long-term interest rates fall prior to the magnitude of the slowdown reflected in earnings estimates. this is the late cycle. -- late cycle period. even if you believe there is a hard landing there is a decision to make. do you want to participate and how big do you think the window is? tom: we are going to have to see. to me everyone over the weekend off what we are going to see in 25 minutes is going to recalibrate and readjust. futures, -21. i have to go to the bloomberg financial conditions index, which has been resilient. jonathan: chairman powell says it is unchanged, tom. yields are unchanged, to k. we are about 25 minutes away

from payrolls. the headline number, a median estimate, 189,000. tom: a perfect equity market yes to get us into the hands of michael mckee. nadia lovell joins us, a strategist at ubs. the esteemed program out of smith college, where it is 42 degrees below zero this morning, i would suggest. want to go to the physics of this stock market. usually you know that time in physics is square. we have seen a mass of time and squared function over february of a boy at stock market. how does that end? nadia: we don't think it is going to end well. of course the rally so far has surprised coming into the year. we expected the economy to slow and the fed continue to hike. the economy is slowing and we are seeing earnings cut. but the market doesn't seem to

care. clearly the market is pricing in a soft landing, as well as optimism around potential cuts in the back half of the year. but that is saying to us is, the market expects inflation to come down quickly to the target, and a recession to be avoided. we don't think that is going to happen. it is difficult to see that. even if it does happen when you think about inflation coming down quickly, what does that mean for corporate topline revenues? that is going to pressure margins. even in a situation, we think equities will be stuck in a walk and a hard place. -- between a rock and a hard place. we think there is going to be some give back. we think that window is closing. lisa: that is where i was going to go. how much further does that window have to go? do you play in that window or sit on your hands and wait for

something to happen that looks more akin to your projections? nadia: we think that there is going to be probably some pullback in the market in the coming weeks. a lot will depend on the data. we will be watching wages closely, as well as the ism services data later this morning. that is going to be important. when you look at it from a valuation standpoint we now have a market traded above 18 times more p/e. even if you close your eyes and get to 20 -- 20 times, which is a lot, that is 4400 on the s&p. from that standpoint there is not a lot of upside on the market. we think there are going to be risks to the downside. lisa: we just sawtek earnings from the giants. we saw very performance. still producing a lot of cash, however. perhaps the growth is waning. how do you assess what is priced

in an terms of interest rates versus profits? nadia: a lot is priced in, and you can see that from the valuation standpoint. in the premium that tec is trading at you would think that the environment is quite rosy protect. as you have noted, the results in the forward guidance has been below expectations. i mean, we do acknowledge that companies are becoming more efficient, and we are more focused on those companies that are focused on improving those efficiencies. also removing costs and controlling capital in order to protect margins and free cash flow. you want to focus on those companies that have more enterprise and recurring revenues. tom: you came out of college and you drink the kool-aid of the capital guardian trust company of los angeles and american funds. you were weaned on annoying -- on knowing you got to be in the market.

which sector do i hide in in this market? nadia: i agree. you have to be in the market to participate. this pullback we are seeing in energy, we are surprised not to see oil prices higher, even how fast china is reopening. but we need to see import data. those companies are producing a lot of free cash flow. we think that this pullback is an opportunity. i think you want to have a more balanced view of this market in terms of exposure to some of the defensive areas, and also the cyclical areas. you also might want to look at some protection strategies in terms of protection to the downside. jonathan: thank you, as always. nadia lovell of ubs global management. from a is an amazing thing, isn't it? tom: oh, yeah. jonathan: i think the stock market is that classic good

where demand for it increases as the price goes higher. it is one of those things where, markets are art, because in everyday life the way we behave about any good or service is, if we see it on sale we want to buy it, and if the price goes up we are shy about going there. with markets it is kind of the opposite. people have this fear of missing out on the way up, and on the way down there like, no, i'm out doing lisa: stocks are all about the story, right? even if the profit perspective is better. tom: a veblen good, to translate, the shoes you want go up in price and more people buy them. i am interviewing richard clarida and in the library of the eccles building at the fed. they have the mother of all economic libraries. i'm here, clara is here, the thing to my left is the library, and they have a first edition of torsten veblen. [laughter]

i said, when everybody's not looking i just want to take three or troubled. jonathan: never mind the classified documents. you just want the first edition books. [laughter] lisa: no one is listening, tom, subject -- so keep talking about stealing them. tom: the library is spiritual. it is fantastic quality. jonathan: neil duda is coming up -- neil dutta is coming up. and coming out of payrolls, we will discuss them. your payrolls report is about 18 minutes away. we are looking for 189,000. from new york, this is bloomberg. lisa m. keeping you up-to-date with news from around the world, i'm lisa mateo. the clock is ticking before we get our latest look at the strength of the u.s. labor market. the january jobs report, expected to show that the

economy added 188,000 jobs. that would be the smallest gain in just over two years. still, it illustrates demand that favors a soft landing for the economy. it is one of the most dismal outlooks ever produced by the bank of england. the central banks as workforce dropouts have become an economic deadweight and left the u.k. facing its bleakest outlook in generations. the boe does not see the pre-pandemic outlook returning until 2026. next week the border between hong kong and mainland china will completely reopen. that is designed to revive the city's role as a business gateway into the country. daily quotas and covid testing requirements will be dropped. hong kong also will allow unvaccinated travelers to enter the city. the u.s. will send ukraine a new ground launch bomb-tipped rocket as part of the latest military aid package. the weapon is made by going. it will not -- by boeing. it will not be deployed anytime soon. it will take nine months for the

first deliveries. shares of apple are lower after the company reported its worst holiday performance in four years. supply chain issues and a softening economy hurt iphone sales. revenue fell 5.5%. apples just sales period of the year. tim cook sees signs for a rebound in china. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i'm lisa mateo. and this is bloomberg. ♪

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then let's take back our market share. checkmate, chess heads. girls, i said “bedtime”! >> we don't have a very consistent bed at this moment. but we ended up having is a disconnect between jay powell and himself. the market is still tight, and

the jury is still out there that we can be comfortable and complacent that inflation is on the way down, all the way to target. jonathan: the global chief investment strategist over at blackrock. we are 14 minutes away from a jobs report the median estimate, 189,000. take a look at markets. just erasing some of their losses on the s&p 500. still down .4%, but well off the lows. yields not doing much, tom. euro-dollar doing something. positive .2%. tom: it is a calm set up before this jobs report. it is like a readjustment after the festivities of the last two days. jonathan: reflecting on the data this week, eci softer that got the rally blow -- rally going. jobless claims at 183,000, just amazing. tom: i would note the vix, to 17.06, shows the bullish

ferment. michael mckee, ready to give you the data here. we will touch on the report here in a number of minutes. right now we are thrilled to bring you neil dutta. he has been more than optimistic. the market is confirming the optimism as well. within the jobs report it seems like the wage dynamic is so important. what is the renaissance macro view of the use of average hourly earnings here in 12 minutes? neil: certainly it is useful because of how freaked it is released. obviously i think like most economists i think the eci number that was released earlier in the week is more significant. that does show some moderation in wage growth. i think the broader issue, at least as far as i see it, is just how far we can push the kind of immaculate wage disinflation story with the

labor markets as tight as they are. sure, there is a little bit blessed church -- a little bit less turn in the market, so companies don't feel the need to build people up as much as they had, but ultimately if economic growth is remaining healthy, and potentially running above trend in the first half of the year, the scope for the unemployment -- there is scope for the unemployment rate to drop a little bit. jonathan: wow. neil: if that happens that conservator -- that can sort of further push-up wage inflation. jonathan: do you think the fed is on their brink of declaring victory too soon? neil: i think that is certainly a growing risk. if you didn't think that, you know, before wednesday, i think you'd be thinking it is more of a possibility after. for me the most interesting was powell's characterization of market conditions. he said they have tightened

considerably over the last year. i think that is debatable. certainly real interest rates are higher, but if you look at things since, let's say september, there has been a significant easing of financial market conditions. whether you think about corporate credit spreads, the raw dollar exchange rate, obviously equity markets have revived here. and interest rates are down. one of the reasons -- one of the things i find most interesting within the financial markets is interest rates are coming down. look at what homebuilding stocks are doing. if it was a recession you would expect homebuilding stocks to tank. that is not happening. what it -- what that is telling you is, elders are going to be able to make things work here. that is why there stocks are coming up. lisa: what you are dealing with is this powerful combination of both a fed that potentially is close to done or even done

raising rates, and an economy that seems to be incredibly resilient. how long can you ride that in a stock market? neil: i think you can write it for a little while. there is a lot of institutional inertia behind the fed. they're not going to come around to my view after a couple of months of data. they are still very much wedded to the idea of the economy slowing down. no mention of the fact that auto sales just surged. look at what that is going to do testaments of gdp. if you assume auto sales are flat for the next two months, and motor vehicle consumption will at about 1.5% to gdp growth in the first quarter. your own consensus sees growth coming in flat in q1. tom: we are going to go to mickey -- mckee with a jobs preview. with your optimism we get the

flames -- we get the inflation component to come down along with some form of grossing us. am i right that whatever inflation does, neil dutta -- neil dutta thinks it is underestimated? neil: i think the composition of growth will improve in the first quarter. but that doesn't mean the inflation issue is resolved. you can make a case for some upside risk to inflation. as an example, used car prices are picking up in the first quarter. so the dollar has come off that. it may mean the prices for imported consumer goods pickup. the fed sees these things too, and again they are stepping back about they are signaling they are closer to the end. i think the issue for market participants is, growth is holding up. you don't have to buy in to my idea that the economy is accelerating, but growth is holding up. inflation is still elevated. global growth is certainly picking up. the fed is not really willing to

short-circuit any of that. that kind of puts a bit of momentum behind risk appetite here. jonathan: eight minutes away from the number. let's wrap it up there. i know you were going to come back to talk about it, but what are you looking for? we have a on hundred 89,000 estimate. does it deliver some upside risk to the print? how are you thinking about that? neil: i think there is some upside risk to the print. i think there is residual seasonality in these numbers, what is interesting to me is what will happen with the workweek. that is something the bears have latched onto. you know, over the last few months, because obviously it has been going down. i do think that manufacturing activities are likely bottoming out, if not picking up in the first quarter. i would be keeping an eye on the manufacturing. jonathan: stay close. mike mckee around the table with us. seven minutes away. what takes your fancy? mike: a couple of things we need

to keep in mind. one is that this is january, so they are redoing the data on total population. that means the household numbers are not going to be comparable to december. when we get the two numbers, don't try to compare january and december. we have this issue every year. the first thing everybody is going to focus on is average hourly earnings, because it is inflation the fed is worried about. we have seen the decline in the rate of inflation. we saw unit labor costs go down in the fourth quarter. if that trend continues that is going to make the fed feel better. you ask neil -- ask neil what he is expecting, and he said some upside surprise. that is the view. we had some whisper numbers at 198 -- 198,000. [laughter] people are thinking it could -- tom: the white line moving up is the whisper number? crazy.

do they do whisper numbers like on average hourly earnings? mike: not on average hourly earnings, but i think they might do it unemployment rate. although that changes little. lisa: we have heard economists say what is going to get the fed's attention is if we get a sub-100,000 print for several consecutive months. how far away are we from that? is that something the fed is looking at as a line in the sand as well? mike: i don't think they are looking at it as a line in the sand, because at this point it is about wages and wages pushing up incomes. we saw for many years growth in the 200,000 range in every month, and no inflation. it doesn't matter so much the size as in are people paying up to get those workers? 100,000 was sort of the view for a long time, but now david wilcox, our head of u.s. economics, says 30,000 is all we need big -- me. you have a long way to go before you would run into any kind of issue. jonathan: always touching on

some of that, tom. tom: wilcox is a horse. jonathan: he is great. mike mckee is the real deal. is going to stick with us. tom: 30,000? wow. jonathan: the jobs numbers right around the corner. 189,000 the estimate. mike: adp said their number is bad. lisa: look out for the weather, it's going to get cold. mike: it is cold outside. jonathan: we have this argument every winter where tom says it is not cold. if it isn't 1950 it's not cold. every single winter. your jobs report, up next. neil dutta, jeffrey rosenberg, mike mckee on deck. ♪

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jonathan: payrolls second the way. equity futures going into it, lower by .5% on the s&p 500 after a monster rally to start the year. in the bond market, your two-year unchanged. your 10 year, yields coming up a basis point. with the jobs report, here in new york city, is mike mckee. mike: good morning. we are waiting for the numbers to drop here. the unemployment rate falls to -- oh my goodness. 3.4%. i'm saying oh my goodness because look at the jobs created.

this does not make adp look great. 517,000 jobs created. private payrolls up. 19,000 manufacturing jobs. those looking at the ism reports and thinking manufacturing was shriveling and dying, not happening. unemployment goes to 3.4%, and it looks like average hourly earnings come in as expected, 4.3%, which drops the rate to 4.4%. there is a base effect in there and maybe some rounding on a three-digit number. it does show continued progress. average weekly hours, 34.7. that is a major jump for that category, from 34 point three. labor force precipitation -- precipitation -- participation rate, it was 62.3%.

we have had some major gains here on the employment side, and i guess we will have to wait just a minute to get to neil dutta. he is running around his room opening champagne, because this is a shockingly good report, because we see a big pain in jobs without a big gain in earnings. that is going to matter -- to matter to the fed. jonathan: neil said there was upside risk, i'm not sure he meant that. 517,000. wages a little higher than anticipated year-over-year, in-line month over month, but what a move. look at the move in the market. equity futures down 1% on the s&p 500. moves in the bond market, yields higher by nine or 10 basis points. the two year up to about 420 now. elsewhere in the fx market, i

think you can take a guess, euro-dollar negative. tom, 1.0871. that is what we call a blowout jobs report. tom: off the headline numbers i take that statistic, five hundred 17,000, i had the one-month revision, and it is a small number, 554,000. mike, the basic idea is, i know you've never seen this before, but is the shock of these numbers because of pandemic dynamics and the end of the year moving around, or is the shock of these numbers, is it 98% of us got this wrong? mike: probably the latter. we don't know exactly why we all got this wrong and why the number is so much bigger than anticipated. we are talking the establishment survey. we knew the household survey would be disrupted in terms of employment because of the changes to the population control numbers. but the establishment survey is

not affected by that. this is really a blowout. there is probably some seasonal effects in there. probably some effects from the pandemic lingering in terms of the seasonal adjustments. but this seems to suggest that american companies are not at this point feeling the need to back. these are hospitality seems to be the big gain or, and we know that there have been a lot of openings there, and that restaurants have been desperate to find people. so, it looks like they are getting some people coming off the sidelines. lisa: to understand the narrative behind this, allen's inner was saying perhaps wages are coming down more quickly than people expected because there is not as much churn in the labor market, the job-switches that push wages higher. how much is that masking the underlying strength that is going to be in wages for longer, even if we are not seeing it with headline numbers like that? mike: it is hard to know how long it will be in there. it will depend on the composition of the labor force

and who is getting the jobs. people in tech are probably making more money, and we have heard reports that the people getting laid off or getting picked up quickly. does it mean that restaurants are paying more? i will have to take a look at the numbers in terms of average hourly earnings, but it suggests we are getting to the point now where companies may not have to offer that kind of thing. the only point i would make is that tom brady is a job-switcher. he did not retire. [laughter] [laughter] for a lot more money. lisa's point holds. tom: he moves gdp. jonathan: that is a monster upside surprise. 517 thousand. the only big economist that came anywhere near was andrew hallman horse -- hollenhorse. this is what citi said. the dovish reaction to powell's

comments implicitly assumes inflation will continue to cool faster than the fed expects, even absent a further tightening of natural conditions. if chairman powell had this report in hand on wednesday in the news conference, when the prescott -- with the press conference have been different? tom: it would have been different. what i see here is so important, with all immense respect to mike mckee who owns this story, as the rest of the world begin to trust the data if so many people are getting this wrong? jack welch and his criticisms of washington data. you just wonder, do you trust the data? why do you bring in the optimist? jonathan: neil dutta, head of research at renaissance macro research. are you running around the room? neil: i just got back to my seat. [laughter] just going to tom's point, i think for your audience it is

not about trusting the data it is about trusting the people interpreting the data. in the same way, political polls. the polls are not off. what is off are the people's interpretation of those. that is what is going on. if an eye on part-time employment, part-time employed for economic reasons. anyone who talks about that, it is a tell. it went up. tom: i think it is absolutely historic here. there are other names as well. neil dutta, along with jim glassman at jp morgan, with his decades of study of the labor economy, he owned the study of teenage employment years ago, and jon mentioned neil hollenhor se, who came within the vicinity here. what are we getting wrong about the fabric of american labor, when it is staring us in the face with large parts of america

with two and 3.0% unemployment? why are we getting this all wrong? -- so wrong? neil: i think it starts with the underlying economic mental and the country, which is picking up. it could well be that conditions are picking up. employers had position for an alternative outcome, for things to be slowing down. now they find themselves having to play catch-up. the underlying rate of employment is not 520,000. that is true, but it is probably higher than where the consensus believes. and given what we know about the trajectory going forward, there is risk that employment will remain strong. if you are talking about 200,000 -- let's say it's half the rate. let's say it's the real number. so it is 250,000. that is more than enough to continue pushing the unemployment rate down over time. so, look, i have said this.

the onus is on the economic bears. frankly, i don't think this is going to really change the fed's calculus. it is not like they're going to come out and say, we have to go back to 50. you know? all they can do at this point is extend out the 25. lisa: how much are we looking at people getting multiple jobs because they are trying to deal with inflation? how are we looking at one person accounting for three of these jobs that have been created? neil: i have to look at the multiple job holders as a share of employment. that is in the household data. i haven't looked at that yet. it does not look to be abnormal. if you don't believe the bls, what about consumers? look at what consumers are telling you about the job market. labor was out earlier this week. i believe it rose to a three-month high. it is at a very strong level.

certainly more or less where it was before the pandemic, if not higher. again, consumers are telling you that things are ok in the labor market, and consumers -- this is drawing on research from the new york fed -- consumers have a habit of spotting changes in their local economies before the data, because they know the places putting up help-wanted signs, they know the places handing out pink slips. they see it before the survey collectors do. consumers are telling you that the labor markets are fine. and that unemployment is low. so if you don't want to take the bls' word for it, maybe you can take the american consumer's word for it. jonathan: get on the phone and tell some people i told you so. neil dutta, fantastic to catch up with neil. tom: there is the upside surprise. as you go into your hour, i thought the equity market

pullback here would be bigger. the nasdaq futures down 1.6%, are still sitting above the two standard deviation trend of the january explosion. i thought we would pull back more given these stunning numbers. no we have not. jonathan: do you take comfort from the fact wages did not accelerate in a way you would have guessed? tom: i'm not going to give my opinion on this, nobody cares, that it is an inflation dynamic and growth dynamic, and the dutta optimist, the bottom line is, do we have a growth miss estimation that you mix in in march and april? jonathan: i wonder how different that news conference would've been with chairman powell. coming up, rick rieder of black rock, anastasia amoroso, and at

9:30 eastern time we will catch up with secretary marty walsh, which i imagine he is going to have a little bit of a spring in his step at the start of the conversation. tom: this is a social statement. mike nailed it. the consensus has a view, and as dutta said, they have not gotten this right, for whatever reason. there is no other way to put it. one insight quickly. mike mckee, weekly before jeff rosenberg. mike: a big change in service industry jobs. leading the way with we hundred 78,000 jobs for the month. so we are seeing the jobs created or picked up in the area that people are looking for. and also the wage numbers were revised for december, up to 0.4% and 0.6%. the drop in average hourly earnings is even greater than what appears off the surface. tom: we will save it for another

conversation. productivity costs may be suggesting a better growth picture for the american economy. jeffrey rosenberg joins us now. he is at black rock. does this adjust a fixed income of view of black rock? jeff: yeah. you have to understand, this is a big push back to the slowing. and it is a reminder of what powell tried to say to the market, but the market wasn't listening. that their main concern is they are not yet seeing the impact of their tightening in the labor markets. and so this is a very clear message, and a kind of important warning that perhaps the interest rate sensitivity put housing to the side, put the interest rate sensitivity and economy to the fed's tightening today. yes, there are long and variable lags, but we have not seen that degree of tightening.

when you take the financial conditions easing, the combined is perhaps we are seeing is the inability of the fed to really get to its goal, which is to rein in the inflation pressures from a market -- powell said it again on wednesday -- it is still a labor market that is too high. lisa: given that we are not seeing wages increase, are you -- do you take comfort from that or disregard that as a compositional effect of what jobs are getting created right now? jeff: yeah. you know, the ahe number in terms of giving us a read on wage inflation is probably the most distorted because of the mix shift. earlier this week we got eci. you've got adp. and probably the best measure, the atlanta fed wage tracker. these are pointing to an elevated level of wages -- sorry, wage inflation, that i think is concerning to the fed.

powell was explicit when he said that earlier this week. the market wasn't listening. this report is a reminder that the tight labor market is still going to be an issue for the inflation outlook. lisa: how would you play this, if you trust the headline number more than the wage number? why would you buy 10 year treasuries where they are if you believe this fed could be that far behind the curve later in the year before it is apparent? jeff: it is a good question, lisa, and you ask about 10 year treasuries. i think you have to be cautious here on the degree to which we have seen the rally in backend yields. you don't have to buy those yields here. you can buy the shorter end of the market. the curve is at a historic level of inversion. i think there is more vulnerability as a result of that. and from today's report and what we are seeing, not just from today but for a long time in the data, the degree of tightness in the labor market may challenge

the ability of the fed to deliver that pivot that bond markets are pricing in for the second half of the year. tom: it is a little bit off of your remit, but i'm going to go there. that is, i want you to link in the shock of 500 17000 and the 48 other numbers that indicate this job boom that some few have called for, and the biden stimulus. it just seems, are we underestimating -- this is for glenn hubbard coming up as well -- are we underestimating tra unch one, charge two, and tranche three? is that what we are getting wrong? jeff: what we are getting wrong and where the confusion is at is a tremendous distortion in the economy from covid. both the covert impact and the covid stimulus. we are seeing the backside of that, and what you take out of

today's report is really the strength in services. this is the handoff from the goods economy to the services economy, but we are also seeing those distortions in our read of inflation. the deflation we are seeing from the goods aside is pushing down the headline, and the core measures of inflation. it is making it look like we have made a lot better progress. powell talked about this on wednesday when he pushed back against the market inflation forecast to highlight that we should not expect that goods deflation to persist. you are going to start to see some of that come out, some of this confusion from covid and the fiscal stimulus as part of that. it is also what we are seeing in the makeup. the surprise numbers that mike mckee highlighted is from the services side of the economy, highlighting the strength we are continuing to see that. tom: jeff rosenberg, thank you so much. mike mckee, he is looking at me like before we get to dr. hubbard you have one nugget. what is it?

mike: we have a massive seasonable -- seasonal adjustment factor for the month of january. and on a non-seasonally-adjusted basis the economy lost 2 million 505,000 jobs. last year 2,000,400 and 20,000. this year 517,000. an additional 200,000 jobs basically from seasonal adjustment numbers in this. as we thought, this may be a hangover from the covid pandemic years. tom: i think it speaks to the unusual time of -- lisa? lisa: deutsche bank just sending out he thinks this data is far more befitting of the fed viewed on the market. that, to me is interesting. basically talking about how this is confirming what they say. tom: we have s&p futures down, but the two year yield shows you the whipsaw.

down to 4.08. we are back up essentially 18 basis points from that. 14 basis points higher. showing the adjustments. it is a perfect guest at a perfect time. he was so much involved with the rebuilding of columbia business school. as we spoke to abby: the other day. he is glenn hubbard, the director of the chiasson institute for global business, and steeped in the underestimation we have of the american economic experiment. i want you to speak of the microcosm, the initiative, the way we go out on a micro basis and find growth in america that pushes against traditional caution, traditional gloom. you have owned the high ground on that for decades. are we underestimating the american business. ? dr. hubbard: i think we are.

we are underestimating how hard it is to forecast a recovery from covid as we change the mix of consuming goods and services, how firms adjust, how industries adjust. i thought we would see an upside surprise. nothing like this, i confess, but it tells me the job market is much more robust. tom: if the fiscal stimulus of this, and let's go to your public service for the nation, typically with those of the republican persuasion. olivier blanc chart -- blanchard calls this the biden stimulus. are we still witnessing stimulus effect that leads to these shock numbers? dr. hubbard: i think we are witnessing two things. one is that hangover from excessive aggregate demand stimulus. but we are also seeing a lot of adjustment as the economy comes out of the covid pandemic.

and now our recovery in services, which are labor-intensive. when people forecast jobs they have to do so at a more micro level, given both of those factors. i think the job market is likely to remain hot, posing a challenge for the fed. lisa: i'm thinking about what alan ruskin said in response to this job's number, saying more broadly one has to think in terms of higher equilibrium rates in this cycle, given very unique labor market resilience. and therefore, less expenditure sensitivity to rates. how high do neutral rights have to go with this labor market is as strong as it seems? dr. hubbard: keep in mind while the fed has adjusted, one can hardly describe monetary policy as overly-restrictive. there are two challenges. one is figuring out how high. the fed is not likely to revert to very large rate increases, so more gradual rate increases, but probably into the fives.

but they may have to hold it longer for more than -- for longer than market participants think. lisa: do you think that this kind of strong data makes the idea of a soft landing more likely or less likely, because of how long the fed will have to hold rates high? dr. hubbard: i'm going to give you the classic economist answer. both. it could make it more likely in the sense that we obviously have a robust underlying economy, given the fed apart -- giving the fed some room to move. on the other hand, the possibility of a policy air here is significant. i think this is a tough-going moment for the fed. it is not easy for the fed, and markets by occasionally loosening financial conditions, will make it more challenging. tom: i look at the path forward here and i think, one of the surprises under-reported in the three tumultuous days we have had, is productivity lifted. labor unit costs came down. are you an optimist that out of

this horrific pandemic all of the shocks, all of the once-in-a-lifetime events we have had, that we can find a new productivity? dr. hubbard: let me start longer-term. that is always safer for economists. i am an optimist about productivity growth future in the u.s., given technological advance. i'm also optimistic that the recovery from covid is leading to some reallocations that may raise productivity. that said, we have seen some productivity fluctuations in recent years. one swallow does not a spring make. lisa: we are talking about trying to understand an uncertain economic moment as the world recovers from a pandemic. there is a larger question the fed has to deal with, which is what is the implication of looser financial conditions getting them further away of their goal? we have heard from a number of wonderful economists this morning, saying it doesn't matter because of all of the tightening from last year. do you agree? dr. hubbard: again i'm going to

have to equivocate. nelda freeman taught us years ago about long and variable lags of monetary policy. there is reason to be cautious, as that news suggests. that said, there is a lot of momentum in the economy, and the way to tighten financial conditions is to tighten financial conditions. the fed still has more work to do. lisa: do you think this federal reserve should go above 5% and decidedly so? dr. hubbard: i do think so. tom: one final question here. we have a stream of news this morning. i just want you to talk to me about the return of the risk-free rate. you have the stock in your hand like professor cohen at columbia business school, and you have a lot of bright young people that have never known actual cost of money. what do you tell them about this new world, that is the old world you, and i, and abby used to

know? dr. hubbard: it is reminding people of discounted cash flow math. technology stock prices, web sawing prices of other goods-producing sectors as well, and then also the higher returns for savers can be a good thing. we are learning that risk-free rates -- in an economy that is growing. tom: glenn hubbard, think you so much. glenn hubbard with columbia, and, of course, thank you for that. we have huge news streaming and we are going to talk about this with our balloon expert, lisa abramowicz. joining lisa now from balloon central. these are stunning headlines and they sort of allude to the ministry we are talking about. china says balloon is for civil use, climate research. pick it up from there. regretful. lisa: from the chinese foreign minister, they released a statement after we spoke all morning.

a lot of people were talking about that balloon over the skies in montana that was a surveillance balloon. that was the accusation from the united states. china responding and saying it was regretful that the balloon entered u.s. air from a force majeure, saying it was for climate research. again, how does this dovetail into tony blinken's expected trip there? he was expected to arrive on monday. they have yet to make a decision about whether he will go. just to understand this drama, it highlights the tense moment of not making this relationship worse, let alone making it better. tom: i think it is an opportunity. if we know what they know and they know what we know, we know that they know, etc. did you get all of that? this may be comedy or mistake or force majeure, which i'm going to say is a legal phrase. maybe it is an opportunity for not celebration, but

conviviality and a point of dialogue to restart a relationship that many would say is fractured. is it an opportunity at the end of the day? lisa: the balloon? tom: the balloon. lisa: i don't think it is an opportunity. i think perhaps it was a trial balloon, as we heard from annemarie, to sort of test with the u.s. response would be. perhaps it was a mistake. perhaps it was actual surveillance. either way it highlights the fraught nature that suddenly this is top news, a balloon over the skies of montana, potentially from china. because they are already potentially surveilling things. this is just further incursion into u.s. territory. tom: stephen engle will have a lot of coverage with our asia team. vivian man, of course, with her leadership out of hong kong. we have a little more time. the way this works, folks, if we

can get a wider shot, the key sits next to me and he has triple top-secret stuff, and the reason they put him next to me is brammo has 20/10 eyesight, and mickey is blind as a bat, so he has state secrets here, and i can never see them. mike: i don't have any top-secret documents. please tilde special prosecutor. one more thing here. the labor force went up by 886,000. that is adjusting for the changes on a monthly basis. so, massive number of people coming into the labor force, which tells you something about why jobless claims are so low. lisa: this is important. is this confirmation of what people were hoping who were all called overly hyped them optimistic -- overly-optimistic?

that they would flood back to the labor market in the face of high inflation, reducing unemployment further, but allowing wages to not rise that much? is this confirmation of that? mike: could be. it is kind of hard to tell, because at this point it is not a month you would expect that to happen. historically people get let go in january who were temporary workers, and the weather is lousy, and you would think that may be in the summertime when kids get out of school and go looking for part-time jobs. to have that kind of number in january is usually the thing you would get if there was a rebound. because nobody could work in december because it was too cold. tom: you are not leaving right now, are you? mike: they are not going to let me. tom: michael mckee world-class effort there. lisa, should we say thank you to our team? lisa: our team is fantastic. tom: the guest quality today, the range of debate is something we will fold into next week.

on valentine's day and that inflation report. futures, -51, i'm going to call it a resilient stock market after what we have seen. thank you for joining us on "bloomberg surveillance." ♪ jonathan: live from new york city. good morning. a blowout jobs report. equities down 1% on the s&p. the countdown to the open starts right now. announcer: everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. live from new york. a monster month of payrolls gains. just as investors look for the chair to hit pause.