>> welcome to the bnn bloomberg. i am john hyland with the first word news. secretary of state antony blinken's trip to china's offer now. the biden administration has decided to delay his trip after detecting a chinese surveillance balloon over sensitive nuclear sites in montana. his visit to beijing would have been the first such visit by a top u.s. tip amount in five years. the balloon was a clear violation and u.s. conditions were not right for the planned trip. a brutal selloff has gotten worse. the empire has lost more than half market value since the report from hidden berg research alleging fraud. more than $118 billion was erased from the market cap of adani's 10 stocks.

the biden administration will allow more crossover suvs to qualify for a newly revamped electric vehicle tax credit. the move comes after automakers such as general motors lobby for the change. today's announcement effectively expands the number of buyers who can take advantage of a lucrative credit of $7,500 by broadening the definition of how sport-utility vehicles are defined. nearly a quarter million texans are still without power after an ice storm swept through the state earlier this week. downing powerlines and snapping tree branches. crews are facing a tough time with restoration efforts. they are facing ice sheets, freezing road conditions and tree branches that can snap back as they thought. ice buildup disrupted power flow. global news 24 hours a day, on air and on "bloomberg quicktake." i am john hyland. this is bloomberg. ♪

john: welcome to bloomberg marcus. kriti: let's start with price action. a selloff when it comes to the equity and bond market. interesting moves, we started off the day with bad jobs data. good jobs data, but bad for the market. 517,000, sending the market down by 1.3% almost for it to go positive and reverse down 1%. that is what we are seeing in the s&p 500. the two year yield matters, a 16 basis point move to the upside. enormous's when you talk about the bond market selloff. what is the bond market pricing in? what is prevailing, the stock story or the fed that is in charge? dollar higher, the strength is crucial coming off the back of the ecb decision yesterday. weakness in the greenback reverse today, stronger by 1.2%.

went crew trading with a 80 handle, the lowest we have seen in a couple of weeks. john: we will have to keep an eye on energy stocks. for technology, the streets still reacting to big earnings stories. we did see weakness continuing for amazon and alphabet. apple shares, interesting to see a turn. up to .5%. a lot of messaging from apple was they were challenged in the quarter because of china complications. if they can deliver in the upcoming quarter, may be the sentiment starts to turn. tesla, the update from the treasury on tax credits has pushed up shares today. ford is under pressure after general motors strong quarter, investors surprised by the disappointing picture over at ford. some of it tied to supply shortages. the company saying they could have executed better. an interesting development in dues -- in disney. the company may think about

selling more of its film and tv products, content, to other streaming players. they have been putting all of their energy into services like disney+. that has been a costly strategy for them. that bloomberg report talking about a possible new avenue ahead for disney, which we will watch. kriti: interesting how the disney story and i would rug -- would argue netflix the way this is transforming is this and film in terms of the business model. let's bring it back to the trade of the day, the jobs report. u.s. labor secretary marty walsh talked about the massive upside surprise earlier today. [video clip] >> i looked at my economist and said, you're way off today. it was a great report. you look at areas of -- that i think are important, business group, health care, education group. the areas that you would know better than i would as concerns

for the economy -- i will take this jobs report any day of the week. jon: let's stay on this story of the jobs surprise. joining us now, joe davis. you heard marty walsh saying what is up to his economist team. heard you did a double take yourself as you look at the print today. joe: certainly. i think this would be exhibit a of upside surprise. i think however, it is important to look at where the trends are. this reaffirmed in my mind the considerable momentum we have had in the labor market and we have a labor market that is considerably too tight. that is something we have heard from chairman powell. it is why central banks have been normalizing. it is important to keep in mind that we are not in the window we would expect to see a slowdown from the fed tightening. that is yet to come. kriti: joe, you wear two hats. you are chief economist at

vanguard, the chief investment strategist if i am not wrong. the two year yield, 426, higher by 16 basis point on the day pricing and perhaps hawkish action by the federal reserve. is this going to change their mind? how does the fed react to a number like this? joe: one says we have not seen the material deceleration of the labor market today. some weakness we were seeing toward the end of last year is a legacy of the supply shock, which was profound and inflationary. at the same time, they are attuned that there fulcrum of tightening is not fair now in the economic data. that is the second half of the year. this whole debate of soft landing, no landing at all is premature if we consider where the lags are in policy. that is the second half of the year. i am not saying a soft landing is impossible. i'm saying we cannot look at today's numbers or the next two months and declare victory on

that front. jon: on that backdrop, is there a way to quantify where we are in the disinflation process? joe: i think so. i think if you look at what was driving inflation broadly speaking, roughly half of it was supply related last year. hath was demand. i think the consensus expectations were that the supply related shocks, particularly the good side, the energy side would come down rapidly in 2023. that is tracking fairer than expected. however, those that are stickier components are not rising even faster than expected, but have yet to fully quell. we have seen moderation. it is going to come back to the labor market and this imbalance between vacancies, which is labor demand and the unemployment rate. that is going to dictate where we are in the tightening cycle towards the end of this year. kriti: when you look at the

stock market and bond market pricing and fed cuts that are starting sometime in december of 2023 according to the market bid , what is it going to take for the federal reserve to bring that to fruition? joe: i think we need to see further deceleration. i would even go further to say more cracking in the labor market. a 3.5% unemployment rate plus or minus with wage growth, 4% or higher is not consistent with long-run stability. every central bank would tell you that, it is why the federal reserve and others have been aggressive. i think it is likely we will see a pause as we get to roughly 5.25%. our outlook has not changed. if you think we live in the old world, you would expect a market selloff in the economy, a deceleration in the economy the second half of the year. that is why the market is expecting easing. whether or not we see that is going to dictate tracks in the labor market the next six months. jon: before we wrap things up,

we talked less about the balance sheet realities. in terms of how the fed navigates on that front beyond moves on interest rates, you are watching that closely as well? joe: certainly. i think it was long overdue that we withdraw liquidity from the system. i have been surprised by the recent momentum in the market. if anything, it is counterproductive to a central bank trying to cool policy. but, the markets can be somewhat fickle. from an investor standpoint what is a clear positive is the have more real rates that are positive across the term structure that is a foundation for longer run returns. but, we have to be prepared for talking is particularly when you are at a potential turning point. i think that will be a theme this year. jon: vanguard's joseph davis. kriti: we thank you as always. coming up, more insight on this job support and how it is

affecting the treasury market. our guest is michael spence, about this issue as well as megan's wiper. --megan swiber. they both join us ahead. this is bloomberg. ♪

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kriti: this is bloomberg markets. let's get back to the surprising u.s. jobs report. we are currently seeing a downturn in the s&p 500 as traders digest the shocking payrolls number. 517 thousand. treasury yields are surging off the report. who better to digest it then michael? as well as megan sweiber? i want to start with the market action. megan, let's come to you first. this idea of a move of 16 basis point on the front end of the yield curve, how much of that is hitting the top end of the trading range or how much of that is something the federal reserve me to panic about? >> [laughter] great question to kick us off. indeed, we are seeing the markets spohn to this incredibly surprising payrolls report that

we got today. really what we see the market doing is pricing the fed meeting to hike for this longer period of time. it is our base case scenario right now the fed will do another 225 basis rate hikes. i think the message from the reports suggested the fed has done nothing to rebalance the labor market, which was the signal they were sending when we look back several months ago at jackson hole. in terms of the message what the fed needed to do to calm inflation. professor spence, what do you think the challenge has been in rebalancing the labor market? >> i think the big challenge comes from some longer-term trends. we know we had a demand surge and transitory blockages. as our previous speaker said, they are fading. but, we have aging populations, a retiring labor force, a young

group who does not want to work in certain sectors and so on. i think what the fed is coming to realize and many others including investors is that they challenge of reacting to the lower supply elasticity is much bigger than we thought. i find the next few months unpredictable. we are in uncharted territory. we lived so long with a supply-side that seemed infinitely elastic. it just not -- it just is not anymore. kriti: mike, i want to ask about what the road map is when it comes to historical precedent great is this a repeat of the 1980's? michael: i do not think so. some of this built in inflationary forces indexing powerful unions that you saw in many countries in europe and the u.k. and the united states are

all gone. so at a aggregate level, you -- we have supply constraints that were absent much of the last four decades because of the huge growth and emerging economies and their massive supply increase into global economy. there is that degree of similarity, but i think institutionally this feels different. these are market imbalances where, whenever we get healthy balance sheets amid a surge, people try to buy more in the supply side is having trouble reacting to it. jon: meghan, let's put this into a time frame. i believe you and your team have talked about inflation levels that we have become accustomed to in recent years, or at least target levels for central banks like the fed that it is not

realistic in your team's view to be getting back there until the back half of 2024? meghan: that is correct. one point you brought up earlier was the extent of cuts priced in to the second half of this year. that is been something that is -- that has moderated how much we are able to see the two-year rate go higher. limited to the extent we can see rates move higher across the curve at this point in time. as the fed has been guiding toward reaching this terminal rate, however one thing we look at specifically in inflation markets as you have referenced is how quickly the markets expecting us to get back down to the feds target cpi reading. you see the market expecting the fed to be able to achieve this in the middle of the year and be able to maintain those low inflation levels over the second half of the year. we think specifically given today's report, the pmi's we

have been seeing, it does risk the ability of inflation to fall so quickly. certainly, the story has been the past couple cpi prints we have gotten a lot of lower inflationary pressures coming from goods, commodities. that has helped the fed out. what they are going to be attentive to, specifically as a labor market remains so strong, is the services component. that is the part of the inflation basket the fed deals like it has some control over and we have yet to see the services component of inflation shows signs of moderation. kriti: professor spence, way in here. if you were looking at a federal reserve who cannot seem to tackle the wage piece of the equation meghan was talking about while staring at disinflation and inflation, what do you do if anything if you were chair powell? michael: well, first of all, i am glad i am not. that has to be one of the

hardest knobs in the world right now. i think i would do roughly what they are doing, they have seen some signs of progress in dealing with inflation so they started to slow down. but, they have not promised it to stay slowed down and have not promised anything on a timer with respect to how fast they are going to get this done. i agree with meghan, the markets are making all kinds of assumptions about that. i would not be surprised if this takes two years, i would not be surprised if the last 1.5% to 2% turns out to be really hard and painful. they are navigating like the rest of us with pretty incomplete information and forecasting. jon: and professor spence, when it comes to the idea of a recession, where do you weigh in on that given what you just said? michael: on the u.s. economy, i

think the strengths are sufficiently large that we are going to have a growth slowdown. i do not think the weight of evidence pushes us in the direction of a recession at this point. again, it is hard to know. the underlining transit productivity are relatively discouraging and low and have been since the great financial crisis. there is not a lot of horsepower on the positive side with respect to longer-term growth. i think a slowing down, but -- the pundits say if we have a recession, it will be a mild one. that seems right to me. kriti: meghan, put some numbers on this. we are seeing a 17 basis point move on the end of the curve and fed cuts do not come to fruition, how much worse could this bond selloff get? meghan: yes, so we have been

long-duration to start the year here. that trait has done well. i will say that in terms of our recommendations, we have been suggesting clients implement loans in real yields and tips which gives you protection from inflation remaining higher for longer period of time. that, to me, is the core risk of any long-duration view you have on right now. we are recommending investors move into those long-duration trades as we are nearing the end of the fed hiking cycle overall. as the fed is slowly reaching that point, that is usually the part in the cycle where you see duration rally and we have seen that materialize over the past few months. we think the core risk to this view and position is inflation remaining strong. we like hedging that in terms of tips and paying fixed on longer inflation swaps. jon: helpful context there.

thanks to megan and michael. an interesting conversation. time for a break. coming up, after the cyberattack on eye on trading and u.k., we look at why jerome is trading this week look like we were back in the 1980's. this is bloomberg. ♪

>> this is bloomberg markets. time for today's for what it's worth. our number today climbs into the hundreds of billions of dollars. each day, that is the value of trades derivative shops are using to clear using technology. that changed this week after the cyberattack on ion trading which left trading -- traders manually processing deals in ways we have not seen since the 1980's. bloomberg has been reporting

extensively on this development. kriti: it is interesting to see the kind of trouble that it is causing. the cftc report is going to be delayed this week. usually comes out about 3:30 p.m. fridays. that is not a big deal. the big deal is the margins, the settlements is where you see traders saying wait, how much trouble are we in? i find it fascinating we are to your point back in the 1980's. jon: we have highlighted those number figures to highlight just how much activity is on the line . in a year where there is continued to be uncertainty, it does feel like the story of continued cyber security threats is a was front and center. kriti: it is and it speaks to the amount of infrastructure when it comes to cloud security and cybersecurity that we will get from mike -- from alphabet. these companies have partnered to avoid these exchanges. a quick change of markets, you are seeing the s&p 500 and the

red down by .8%. nasdaq down by 1% on the day. bond market selling off 10 year yield higher. more coverage ahead. this is bloomberg. ♪ as a business owner, your bottom line is always top of mind. so start saving by switching to the mobile service

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>> we are kicking you off to the close. we have two hours left. i am scarlet fu here with katie greifeld. we started with massive headline risk. katie: if you look at the market reaction today, you can see that surprise. we got back to flat on the s&p 500. now we are pretty far away from flat. it comes back to that huge payroll surprise we got this morning at 8:30. that is going to be the first thing i would tackle.

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