>> they continue to believe we are going to see a global economic recession. >> we get a soft landing, that is fantastic. a hard landing is on the radar. >> i think the fed is going to continue hiking rates. >> it would take a lot to derail a hike. >> our inflation forecast is strong enough on the downside they do not need to hike again. >> this is bloomberg surveillance. jonathan: it is payrolls friday, live from new york city this morning. this is "bloomberg surveillance"." your equity market a touch softer with 0.1 percent going

into payrolls later this morning. the estimate, 200 30,000, creeping higher in the last 24 hours following that report from adp. tom: people say adp was a fluke. i got people saying there is substance there. basically, it is head spinning friday. i have no idea what to do. we've got christian warner coming up and john silverstone. jonathan: off the rails already. tom: what about the panic at silverstone? explain it to me, you are the british guy. we've got a fully catered breakfast here. it is really wonderful. i have the bap, it is great. explain to the audience what a bap is. jonathan: it is a bread roll. you can put bacon in it. any -- in east midlands, i think we call it a cobb.

tom: we call it a two dollar value meal. jonathan: christian is coming up in already five minutes. looking forward to that conversation. tom: jobs day, i am looking at five point 0%. jonathan: 490 7000 reasons why things changed yesterday. a massive upside surprise from adp. people initially into struggle for adp and see the move in the market and are like, i guess we should take this seriously. ism was decent on the services aside and is reintroducing the idea the fed may have to go further. suction saying in the last 24 hours -- this reintroduces the risk of the policy overshoot, this fed has to go too far because they are using lagging indicators like the labor market to encourage them to do more. tom: can they succeed?

can they succeed without overshooting? i think by definition, in a central bank has to overshoot. they get it wrong at some point. jonathan: looking forward to the guest lineup this morning. going into race weekend on this payrolls friday, a fantastic lineup of guests including nadia of ubs. we will catch up with mohamed el-erian. looking forward to hearing from those two. 30 minutes after payrolls. tom: mohamed is strong to talk about them. i think they are talking about an f11 team between them. jonathan: larry can afford it. futures slightly negative on the s&p, down .1%. i think we can call it 5% on a two-year. on a 10 year -- first close above 4% on a 10 year post svb.

tom: we've got dissen version. we went from 100 five basis points on the tuesday and spread, 95 basis points right now. the 10 year real your -- reeled yield -- real yield is the heart of the matter. greifeld is doing the real yield write a afternoon. the answer is 1.80 percent on the 10 year real yield, a game changer as we going to jobs. jonathan: joining us now, chief investment strategist and chief economist at citi global wealth. wonderful to start the program with you. let's start with your expectation. in about 26 minutes -- two hours 26 mitts away, what are you looking for? >> i think we should remember the services sector had a depression three ears ago. we are not about the lowest services jobs anytime soon.

it has had -- i think everyone's expectations, the labor market has outperformed. everyone's expectations. it has outperformed the economy and i think it is investors we have to think about, how that will unfold in the next couple of years. think the federal reserve is going to get its way one way or the other to get the unemployment rate up. there is not going to be some singular moment where we collapse in every industry. it is not working out that way. there is going to be a period in which the labor markets are not outperforming the economy. i think the economy itself can recover. this period in which output has been falling, this as investment has been down and employment has been up, that is an unusual period. i think we are in for another solid gain in employment if the federal reserve wants to say we've got strong employment and above target inflation, they go ahead. in terms of the labor market, i

have to look at the different -- i have to look at it differently from where output is. tom: i think of mankiw seventh edition macroeconomics. you own chapter 23. what it means for the corporate world. what -- where are you on the linkage of a better american economy into nominal gdp, which gets you into the animal spirit of companies and profits? is that linkage still there? steven: i think it is muddied. i think we've got two years in all likelihood of below trend growth with industries just asynchronous. manufacturing readings, the ism at 46. we have inventories coming down, the pace at which orders have collapsed is slowing already. we are deep into a manufacturing recession, a mild one. i think single-family home building and multi family are different places. travel and leisure is in a very

different place in the economy. these different moving parts will speed up and slow at different times. we are going to in the in all likelihood with a forecast that looks like the feds, below trend growth, rather than collapse. i think that it's going to be the same thing for companies and industries. the one thing we should not expect them to do is binge higher again. at the point in which the economy is, this has been a job-full recession. take a look at the construction industry, headed 20% loss, dropping residential investments. i think we are going to end up with a jobless recovery on the other side of that. it is going to be good for asset prices once we get through this period. tom: to your colleague in crime, catherine man --did you notice whiting cannot come in, hollingsworth comes in? jonathan: what is that about?

tom: mann and hollingworth's are talking about a higher rate regime. will that derail the game? steven: i think there has been a lot of good news here in the financial system, at least relative to where everybody thought it was in march. we are not seeing bank deposits flee the banking system at this level. if they continue to probe higher, there are risks around this. we are not going to go through this cycle of commercial real estate problems. i think we will have an absence of very broad-based problems in the high-yield bond market. industries that normally drive us in a very cyclical way like energy, we are thinking about $65 for the oil prices, a trough in a slowdown. gdp growth, trotting over a couple of years. 1.5%. that type of environment.

from that perspective, yes, we will have higher real rates and i think that will be an opportunity for investors. let's remember, inflation that has gone from 9% to 4% -- it is doing this with a percent inflation -- 8% inflation in shelter prices. think, headline inflation is going down as rapidly as it ever has after a description of people in the economy. it will continue to go down. jonathan: i like your view as well on the treasury market. the curve, deeply inverted. backed away a bit over the past 24 hours. jim reed of deutsche bank said this. he said, the longer the inversion remains, the more likely the animal spirits will continue to drain in the background of the downturn. it is hard to believe the banks will reopen the spigot with a curve so inverted.

how important is that curve and the inversion we witnessed in a moment? steven: it is important. it is giving a high reward for sugaring down and not investing. whether that is in financial markets, whether in the real economy, it is having an effect on banking. again, it is not a situation where the entire economy is going to be dependent on the curve. i think what we are seeing in terms of tightening bank lending standards is meaningful to restraining growth, but not owing to shut down parts of the economy that are still rebounding from a harsh stock from three years ago. you do not go through a period were services employment balls 25 million and say, let's start over again because of the curve. jonathan: next week, cpi, inflation around the corner later this morning we have payrolls. after that, jp morgan season starts as well.

what are you focused on as earning start to pour in? steven: it is remarkable, dispersion evaluation and whether or not earnings data will continue to power that. look at nasdaq and 27 times expected earnings. taking a look at mid-caps and small caps, the profitable portion of those in that market at 14 times. that is just the united states. go outside the united states, it is an 11 times market. that evaluation dispersion, we've got to start looking at it and seeing even if we spent low trend both in the next couple of years, so much of the world equity market that is trading like we just had a mild recession. tom: is cash -- i have never said this. that is not true. i have never said this in 18 years. his cash attractive at a 6% rate? steven: at a 6% rate, it is more

attractive than it has been but not sustainable at 6%. take a look at the feds own forecast for the long end normal of policy rate, two .5%. they spent a long time at 0%. i do not expect zero again. the longer end of the bond market, the treasury market -- it is hard to find a good part of the treasury market that is undervalued relative to some other point. they pretty efficiently prices in two paid through the python, getting in inflationary down, getting economy past people we have had and these shocks. when we get there, we are going to have --the fed is going to be sure. i do not leave we are going to be doing 5% or 6% cash as a normal rate once we go through that. jonathan: pig through the python. you never heard of that? tom: no. is that a city university of new york?

like, is that a steve whiting thing? when you get your phd in the island of manhattan -- jonathan: that is a pig through the python. thanks for that. going into payrolls, two hours and 20 minutes away. looking for 230,000 based on a bloomberg survey. yesterday before adp, that number was 220 5000. michael mckee telling me about the whisper number, creeping higher after the adp report yesterday. tom: this was an actual permanent -- terminal function. whi esco, type it into the terminal. if you have a terminal in your car, keep your hands on steering wheel. we have ballooned out from 260,000 to 275 thousand. what is important for those that do not keep score at home, we are supposed to be back to 150,000 south to begin that labor tension the chairman once were miles away from that.

i stand corrected at 8:30 when we get 60,000. we are miles away from where chairman powell wants to be. jonathan: it is under morgan stanley later this morning, 270,000 on payrolls later. coming up, fantastic conversation lined up with mark of bank of america. this yield curve inversion of the bond market. looking forward to that. tom: can i get a bap please? jonathan: you want a bag -- a bacon or a sausage one? this is going to be the conversation with christian horner of red bull racing, right around the corner. ♪

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>> we seem to diversify and not enter couple -- at the decoupling of the world's two largest economies who can destabilizing the global economy and impossible to take. jonathan: there is a new earth word in international relations. janet yellen touching down in china with her counterpart in the chinese government. we have been using this phrase, de-risk, not decouple. that new d- word is jonathan: diversified.

jonathan:that was a committee that made that statement. the same committee in the fo one c. tom: i have the clearest memories on a lovely summer day about when henry paulson tried to jumpstart an active dialogue with china about something as prosaic as trade. we are beyond repulse and -- where paulson was and yellen had to traipse through defense issues, historic issues, present issues and the technobabble. i do not still know what the balloon was doing, do we? jonathan: we've got a decent idea. you know she does not want tariffs. that is not the kind of individual that wants tariffs. tom: within the can of international economics, everybody is still anti-pair of, whether canada, u.s. and china. this weekend, the lottery of the summer reading. this is robert e caplan's robert

the caplan's marco polo, a great overview of the cauldron of all those nations as we diversify -- to vietnam? jonathan: is that your book of the summer? tom: no. my book of the summer is olivier blonde chart. it is wonky. jonathan: when do we hear book of the year? tom: last year, we did it early. unseemly early, although a great book. this year, we are holding off. jonathan: are you saying you were wrong on the book you selected for book of the year? tom: no, but i am thinking formula one, red bull, a coffee table book. that would be good. ed mills with decades of experience in washington, he holds up the shingle at raymond james and joins us this morning. it is the one common ground in

washington, the republicans hate china. the democrats hate china and will be lectured to diversify. how does capitol hill diversify with china? >> this last week where china is seeking to restrict some critical minerals that are needed for semi conductors and other high technology, that supercharges congress in their agenda to do permitting reform. it supercharges them in the need to diversify supply chains outside of china and diversifies the need to make sure critical minerals the biden administration -- they have put up 50 critical minerals -- half of them, more than 50% we get from china. there are other places in the world where we can get those. last couple of years, we saw huge change in the semi conductor space, massive investments, massive subsidies. look for that diversification to go to into critical minerals. tom: it is friday, we are

allowed to do things on tangent friday. the day i realized china took over the cobalt in congo is a generalization, that was nine years ago where china decided to own african metals. the zeitgeist right now, the economist did a great treatment on this of nickel nodules on the floor of the ocean. is china going to beat us to the floor of the seabed of the ocean to take nicole because congress cannot get their act together? ed: if they do, that is more pressure on congress acting. one of the big concerns of the last several years, you mentioned part of this decoupling is, which side is each part of the world on? the one belt and road initiative out of china was looking to deepen ties with africa, deepen ties with parts of europe. that is part of why they do not like they pressure china as much as we do.

and a identifies something as they are going to be firs t in the world, that is when congress gets involved. two extent they went to be first in the world going to the bottom of the ocean, we are sending subs. tom: my book is about the belt and suspenders, -- jonathan: book of the summer. tom: we will build on that. jonathan: where to the europeans fit into this? ed: what the europeans so far for the most part, the biden administration has been able to keep the e.u. and a lot of our allies on the same page. what china always tries to do is divide and conquer. what we saw is, some restrictions first announced by the e.u. and then they were targeted against the e.u. they wanted to see if there would be a division. you saw a couple of months ago, xi and macron meet.

it almost seemed as if micron was entering into that division and questioning. that is probably making sure china stays out of the war in ukraine and not support russia. i always watch for china to very craftily try to find wages in relationships and on trade issues, they think they have a wedge with the european union because of their investments in europe because of one belt, one road and because of the training partnership the e.u. absolutely needs with china. the diversification is better than the risking from a diplomatic perspective for janet yellen to say this week. jonathan: from the u.s. perspective, who is the weak link? is it france? who is it? ed: i would say it is a combination, but i would put rants because of those diplomatic relationships and some of the issues between airbus and boeing. italy has been more and more the

poster child. germany, as their size as an economic engine, i think they look at them collectively and individually trying to find those wedges. you saw u.s. companies meet with chinese officials over the last couple of months. the chinese officials largely had figured out they cannot divide and conquer too much within the biden administration, so can they divide and conquer with u.s. businesses, putting pressure on u.s. officials to not go as far as congress or the administration once? i always look to see how successful they have been. right now, they are not but they are not going to stop trying. jonathan: how do you think they will change that in the united states? we can see how successful the chinese government has been with companies like the walt disney company. if you pick a bank and ask them to say anything negative about the u.s., they are willing to go

there on social issues. how do you think the u.s. and this administration, future administrations for that matter, managed to get corporate america onside with their view of the world? ed: i think one of the big changes that has not had enough conversation is, forever, we have always thought about having all sorts of restrictions and sticks in the relationship. now, we are moving more towards carrots. once we look at the inflation reduction act, there are massive subsidies to diversify supply chains out of china and build it in the knighted states or with a u.s. partner, especially with north america. we saw in the semi conductor space, we are not trying to put restrictions on semiconductors, we are seeking to build capacity, massive u.s. subsidies so you get u.s. businesses along by not giving them restrictions but by giving them support in carrots to build in the united states and carrots to diversify. incentives matter and the more

incentives we give to u.s. businesses, that is where you see that happen. jonathan: it is going to be interesting to see how this issue progressive the next few years. we have had blinken, yellen this week. biden and xi, next. tom: that falls into our labor economy, as well. this codependence is foundational. jonathan: there is a conversation the past few months with ceará house of wells fargo on the last mile. the effort to get inflation back to 2%. sarah house of wells fargo, up next. ♪

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jonathan: payrolls data in the united states of america, two hours away. 230,000 is the estimate. tom: followers on threads. jonathan: higher than expectation. yesterday, a lot of people started to pencil in a higher number. price action going into equity futures on the s&p, on the session negative by not even 0.1%. on the week, down by 0.9% through thursday. shortened trading week post july 4. tom: we need to emphasize into this jobs report, the status screen does not look like it looked 10 days ago.

it is radically different in the fixed income space. the 10 year real yield just printed a true 1.80 percent. how many people 15 days ago would have suggested that? next to zero. jonathan: we are talking about highs we have not seen since the financial crisis. two-year, 10 year, 30 year. two-year, south of 5%. yesterday, 5.11 on the two-year. 10 year, through 4%. latest from stockton, strong labor markets are resilient to consumer and sticky inflation argue for higher policy rates but increased risk of policy overshoot wiley momentum led selloff could continue in the near term, we see an opportunity to reignite, reinitiate long-term, attractive levels. tom: that is going to be the strategy. there will be a lot written after the jobs report today and the recalibration into july and

q3, it is going to be something to see. sarah house joining us right now, with wells fargo. i hearken back to the memory of how wells fargo absolutely nailed double-digit unemployment. when it moves, it moves quickly. do you people -- are you at a place like 2006, 2008 were suddenly, unemployment rate could move higher? sarah: i do not think we are there yet. i think that is probably more a move we are expecting early next year. i think in terms of today's unappointed rate, looking for a slight dip given what we saw in household numbers of employment on a what participation rate trends. we are looking at a tight labor market right now, but i think there is continued pressure on going at monetary policy. tom: is the tight labor market a surprise to the fancy phd's at the federal reserve?

are they as surprised as the market is? sarah: i think the degree of how strong the labor market remains has been a broad surprise. you can see that whether it is in the bloomberg consensus expectations of nonfarm payrolls over the past 14 months, consistently undershooting. you can see it in the more recent data. if you look at that u.s. labor market surprise index, it is at an 11 year high. we are seeing signs of the labor market cooling, it is much more gradual and a pace than what many expected based on how fast the fed has moved. tom: later this morning, we will catch up with a peer of yours. jonathan: she has written about labor hoarding. you touched on that. can you build on that? the willingness of corporate america to hold onto their workers longer? are you seeing evidence of that? sarah: i think given the severity of the labor shortages we have seen over the past two years but also the severity we

are seeing in 2018, 2019, it does set a higher bar for businesses laying off workers as they see output decline. it is too early to tell which extent we will see that. you are seeing hints in terms of the average weekly hours numbers, particularly in sectors like manufacturing or transportation which has seen their work week drop where it was prior to the past downturn. i think you're seeing hence, but it is more a time will tell and we see -- we need to see that more persistent drop in output to give a sense to what degree businesses are holding onto workers. we see a degree of labor hoarding and every downturn, but usually midway through the cycle, you see layoffs begin to mount and that hoarding rivers. we have to be cautious in how much we can insulate that next downturn. jonathan: morgan stanley singh be resilient labor market is central to their --

sarah: we are still cautious in terms of whether the fed can pull off this soft landing, which in our view, means getting inflation down without a recession. we are expecting a mild recession in the first half of next year. i think it will take a meaningful drop back in demand to get inflation back in the bottle and keep it there for good. there is some disinflationary momentum building, but in terms of getting inflation back to 2% and sticking that landing, we are going to have to see some weakening in overall demand associated with a recession. tom: you have led the debate on this. getting out front on the stickiness, the ability from 4% to 2%. there is a new trend here, i am going to give credit to jim beyonca in chicago suggesting not only we go down to a sarah

house level of 3% but turn around and see an increase in inflation. is that in the realm of possibility? sarah: i think given that we are -- we have been looking at inflation running iix the fed's target for essentially two years now, i think given that possibility for inflation pressures to become more entrenched for that price setting behavior to be different now than it was prior to this episode, i think it opens the possibility of that risk. i think we continue to see some deceleration as we move through 2024 and further into 2025. i think that is reflective of the risk this is not going to be an easier or short battle, there is a long way to go in terms of bringing inflation down to the fed's target and it remains to be seen how much resolve the fed has. tom: the headline data, what is the data that matters today at 8:30 beneath the headline data? what will you look for? sarah: the labor force

participation rate and what is going on with labor supply is going to be important. this is probably the most important element to the fed pulling off that soft landing, getting that labor supply, reduce wage pressures and inflationary pressure coming from the labor market but still keeping people employed and having money to turn around and spend. that is one number i am interested in. and what we are seeing in terms of hourly -- average hourly wages, inflation is the foremost concern of the fed and how that is affecting the inflation number. jonathan: can we finish with the adp report and the closed out 500,000 jobs added? i am sure you took so many calls from clients yesterday. what did you tell them? sarah: i told them since adp has undergone -- has changed their methodology, it has overshot the numbers by an average of 75,000. we are due for an overshoot in adp.

definitely a robust number. jonathan: not looking for 500,000 on payrolls later, right? sarah: not quite, but still a strong number. jonathan: sarah house of wells fargo, thank you. the latest on the jobs report coming later this morning. for those of you interested on the estimates from the big banks on wall street, morgan stanley -- joins us later. goldman, 250,000. mike apron at bank of america, 250,000. citi's andrew hallman horst, 170,000, but still thinks we get 25 basis points from the fed later this month and 25 again in september. tom: standard area, one thing you flunk in standard economics. it is one over the square root of 150 million, which means it is like the width of the formula

one race in our sloan a. it is .2 wide is boring. jonathan: are you upset with that track? tom: i said the sausage cob i had was wonderful. the area at 8:30 is underplayed. can i bring up somebody i saw on our famous foodcourt? i sit at the foodcourt every morning at 10:05. it is like yoga, i entered self. to mash comes up to me. he is one of my heroes. he has got the chart of the day. on radio, all you need to know is it looks like in elon musk moonshot. it is the generic two-year united kingdom bond. it does not look like the american bond. it is straight up in the vicinity of 6%. 5.75%.

what is the level of tension of, do something from a governor bailey who said we are not going to declare victory, they are miles from declaring victory right now. jonathan: when you say something, what do you mean? tom: tim ash says they need in antichrist's program. that is where he is. jonathan: on the fiscal side or monetary policy side? tom: i do not read the reports. jonathan: we should go through the levels. i have compared and contrasted where we were. at the end of september, you've got lists at number 10 downing street trying to do programming stuff. a spike in 470. bank has to start bond buying begin in the guild market. we have taken out those levels. at the end of september, we were at 470,000 at the highs. right now, looking at 550,000.

sterling is on its knees, 103. 50. this moment now in the u.k. is very different to the moment we were in in september. we do not have that financial stability. many think that will come, but the moment is absent. you do not have the policy on the fiscal side that was apparent in september. tom: christian horner would say, what are we upset about? the u.k. has a buoyant economy. jonathan: it is a surprise to the upside. tom: a buoyant economy away from recession. these are good things, so rates elevate higher. jonathan: dibble did -- double-digit inflation, not a good thing. if you are a saver, had a great conversation yesterday. if you are a saver right now, you have a lower marginal propensity to spend so you are getting higher interest rates. if you are a debtor right now

and struggling and got to refinance that mortgage and you've got to do that in the next 12 months, these are tough times. it speaks to the idea for one person in america, things are great. high interest rates on a lot of cash. maybe they looked at a 30 year mortgage and own their home outright. for the debtors, they are struggling. tom: you know i have trouble with aggregated macroeconomics and institutional authorities have a responsibility to do that. off the pandemic, this is wildly disaggregated. you and i are looking at austin f1 and, red oak of the amex said you've got to go something cheaper in europe and we will have to do that. jonathan: mohamed el-erian is coming up later. tom: you ignored me. jonathan: as you often do to me. he says there is not enough focus on the supply side. tom: do you think mohammed is

going to silverstone? jonathan: we can ask him. can i say, i love you are into f1 now. i love this. conversation coming up with red bull, i love you are in a position where you want that conversation. tom: for those of you who do not know this racket, think of the guy with the los angeles angels, otani. the guy driving for christian horner, he is like otani. what is his name? jonathan: first step in. tom: it is odd how extraordinary he is. jonathan: you have drivers like that now and then. tom: was schumacher like that? jonathan: sure. wanted to take the car to a place where other people are. it is not just about the car, it is about the person in it. the red bull race have done a phenomenal job. the guy making that job -- pushing that car. tom: we are going to digress and

in the summer, we try to do that. in english football, i do not understand the money of english football. i do not understand. jonathan: we are speaking dominance in world football right now? tom: something about real madrid. jonathan: haven't spoken to maria in a long time. tom: it is hard to get to her entourage. jonathan: next, christian horner of red bull racing on bloomberg surveillance. ♪

somebody would ask her something and she would just lk right past them. she didn't know they were talking to her. i just could not hear.

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starts drifting higher. the fed is going to find this an acceptable. the two rate hikes we have priced in the rest of the year will happen >>, if not three. even if the fed does get rates up to 6% and keeps them there, unless you think inflation is also going back up again, that policy will become even more restrictive and they are going to have to unwind those rate hikes quickly. otherwise, they will collapse the economy. jonathan: what a range of views they. -- views there. payrolls coming in and about one hour, 40 three minutes now. looking for close to 230 thousand in our survey from bloomberg. yesterday before the adp report, 225,000. we get this whisper number. let's talk about this whisper number with mike mckee. it is creeping higher. michael: it is shooting higher, went up to 275,000 because

people saw the adp report and it is a herd mentality. it has been an effective strategy to bet on a higher number for the last 14 months because jobs have come in higher than the bloomberg consensus for 14 months in a row. tom: are they quality jobs? are they quality jobs or are we just doing, he curses, may i help you jobs? michael: the adp report yesterday was most waitress, may i help you jobs. we have seen a significant increase in pay for people at lower levels on a percentage basis, higher than people who have high skilled jobs. tom: in the zeitgeist right now is this new phrase. i would love your response. rich -- i cannot pronounce it -- which session, the upper quintiles of people that are feeling job angst. do you buy it? michael: yes, in a certain sense

because a lot of wear their layoffs are happening have been in take companies and finance companies who are cyclical. they staff up when the economy is starting to get and grow quickly and quickly get rid of people when business falls off. however, we are talking to people who are not going to be suffering as much as people at the lower end. it is harder to discern an overall impact on the economy. tom: i look at wages and economists are going below nonfarm payrolls. explain how mike mckee sees our wage increases and agony right now? michael: there are wage measures. today, we get average hourly earnings and we are starting to see average hourly earnings meet or exceed the inflation level. for a long time, workers have been losing ground. the inflation rate was higher than what they were getting in

additional cash. now, we are seeing wages rise at 4.2% is the forecast for today, average hourly earnings and inflation is running at about -- we are expecting next week to see it in the 3's. tom: we are looking forward to 8:30 this morning. jonathan: good to see you. tom: alex from auto sport, from the new york times, says from lewis hamilton -- he is with the mercedes team. jonathan: [laughter] tom: is it sir lewis? jonathan: it is. tom: sir lewis says it has the best layout. for our american audience, i grew up in the fumes of lincoln's glenn. explain what silverstone means. jonathan: we can catch up with christian horner. going into race weekend in silverstone. can we start there, just how special is this race for you and

the team? >> it is one of the best circuits on the tour. it is fast, demanding, a big challenge. it is old-school. this tract goes back to the second world war. an old airfield with -- converted into a racing circuit. it is one of the big tests of the drivers on the teams. jonathan: last weekend, there was this amazing moment at the end of the race. he came in for a pit stop to get the quickest lap. can you describe the guy you are working with every day? how special is max? christian: what we are witnessing is a sportsman that is in the top of his game. he is a joy to work with and continues to surprise us with the levels he is reaching and the -- yeah. nothing is, he continues to

surprise us at the moment, but he is in the form of his life and there is more to come. tom: i look at the wonderful coverage skies sports is doing and they forget about verstappen five minutes into the race to look at the netflix's and all that baloney. we have from america, a guy named ohtani, who is once in a generation. is verstappen like that? michael: we are in a house he and period. we've got hamilton, the most successful driver of all time. we've got alonzo, doing it for the old guys. we've got this emergence of max verstappen. only in time will history judge how good he is. what we are seeing at the moment is something special, particularly with the results he is fracturing up. jonathan: talk about how you

maintain how many in the team. when he took the point last weekend, that was taken away from his teammate. can you tell me as a manager how you are maintaining harmony when you have to provide resources for someone as dominant as max and maintain the confidence of his teammate? michael: he is dealing with openness and honesty. i think max deserved the opportunity to go at that fastest lap rate he created a pit stop himself. for us, there was less risk to put him on a set of new were tires and take the pitstop. i think the relationship between the two guys is strong. the most important thing is, they communicate. when there is an issue, we talk about it. we get it addressed. jonathan: can we expect checko to be racing for red bull next year? michael: he's got a contract.

he will be racing until 2024. he has sent recently -- said recently his racing has been great and hopefully the confidence on the podium is going to put him back on the pace on saturday. jonathan: let's talk about someone else who is unhappy, lewis emil 10, unhappy with the dominance of red bull. -- lewis hamilton, unhappy with the dominance of red bull. what is your response to the people that up with the dominance on your team? michael: how many years did they dominate and nobody went near seeing him for about seven years? we are performing at a high level. christian: the team it's doing his job. the others will be putting up target on us and we'll be trying to catch and i think stability of the rules, the field is going

to converge and it is only a matter of time. i think trying to get everyone to design their car and start date would be impossible to manage. tom: our producer, the guy who tells us what to do everyday, grew up in western australia and says we are not doing the interview if you do not talk about your third driver, daniel. i think the people looking at daniel ricardo in america is saying, what does this guy do? do you want to retain a third driver like daniel ricardo or is this a good feeling if he goes off to someone else as rumored? christian: i gave him that chance because i thought for one needed that. we know how talented he is. he needs to rediscover his form and mojo, which he seems to be doing in the virtual world and testing our car in the real world on tuesday and wednesday of next week.

we will see where he is at in relation to the race of drivers. it will be great see daniel back on the grid next year, even if not in a red bull car. tom: a sensitive issue in the danger of formula one and all the safety efforts made. there have been two different, difficult bets in formula one, including a tragedy recently in belgium. what do you do day today -- day today to make the sport safer? what is the next thing? to make it safer christian: the sya do a great job in terms of safety of these cars. compared to where they were a few years ago. to think a human could survive that is beyond belief. you can always do more. the fia pushing us with the cars. now, the circuits. i think the circuits we need to look at, we can only take the

car so far. but, i think the more we can do as a collective with the fia on certain circuits. tom: i was baffled last week watching every minute of it and what your team it did. i look at, i guess it is called the stewards, where the track is not working out and people are going off the track and there is 1002 hundred violations. we do not see that in american sport. are we going to see that again at silverstone where the quality of the driving is so good, the track does not fit the excellence of the drivers? christian: hopefully not. i think that was something that needs to be addressed weaving forward. the problem is, they cannot see the lines. i think if there was a gravel strip there or something like that, they would not go near it. if there was a wall there, they would not go near it.

i think there is things that could be done to improve the situation. hopefully, it will not be an issue here. you have got to stay in the lines. jonathan: there are worries that may we have protests to climate change, protesters we have seen protest various sports in the u.k. the last few years. are you concerned about that the next weekend? what have your conversations been with regards to that? christian: it is a big concern. you run onto the tennis court, there is only a bat and a ball. you run on a former one track, there is 20 cars going around in a space close to 200 miles an hour. it is unthinkable people would put themselves and drivers at such risk. i really hope that nobody does

anything stupid this weekend. formula one is taking sustainability and pushing that message and driving with fully sustainable fuels. we are doing more than any other industry to champion that. i think, disappointed to see somebody try and upset what is going to be probably one of the biggest events, sporting events on the british calendar this year. jonathan: we have loved our conversations, let's continue them. good luck for the race weekend. as a ferrari fan -- tom: i mean it. that is rude. jonathan: absolute dominate red bull. it is not about the team, it is about the driver. max has been at another level. tom: it is like otani. the thing i got out of that as a complete amateur, they cannot see the track.

jonathan: limited vision. tom: i was unaware of that. jonathan: looking forward to the conversation coming up in a moment. i am loving your interest in formula one. equity futures, negative .01% on the s&p. job support around the corner, the >> we continue to believe that we are going to see a global economic recession. >> the hard landing is on the radar. >> i do think the fed will continue hiking rates. >> it will take a lot to derail a hike. >> our inflation forecast is strong enough on the downside that they do not need to hike again. announcer: this is "bloomberg surveillance" with tom keene,. then pharaoh, and lisa abramowicz. jonathan: it is payrolls friday.

this is "bloomberg surveillance" on tv and radio alongside tom keene. i am jonathan pharaoh -- jonathan ferro. the number we are looking for is 230,000. in the previous month, 339,000. the estimate is creeping higher after dominant numbers we saw yesterday. tom: maybe it would be a sleepy july friday. that is at 72 hours ago and with a vengeance for the adp report yesterday. a 1.0 8% real 10-year yield. a tenured nominal yield of 4.6%. jonathan: the two-year yield at 5%, the two-year yield at 4%. all that banking stress. we are talking about a credit

crunch, hard landing, and here we are a few days later, not even talking about financial stability. tom: was some fancy work that i cannot keep up with last night, reporting on deposit flows and money market flows. the answer is, i don't think that problem has gone away. when i look at where yields are and look at money market funds a zillion years ago, why cannot not happen again? i am watching money market flows. jonathan: ultimately, we end up with tighter financial conditions, softer lending standards and growth. we spoke to tom earlier this week who thinks inflation expectation for this cycle are bottoming. that inflation is sticky. the federal have a real challenge. that is one view and other people are taking lately the others died.

tom: i need to say good morning to everyone worldwide. the reach that we have, we say good morning to belgium in the list landscape as they were been dazzled by your knowledge -- they were bedazzled buyer knowledge. have you been to fleming? jonathan: to belgium? i have not been there. we all know who that is because he was a racing car driver. a lot of people assume he is dutch but also the alton's -- also the belgians -- tom: the dutch is not belton right? jonathan: no, that's the no children's -- that's the netherlands. yesterday, s&p 500, biggest one-day loss. in the bond markets, we talked about his levels.

10-year yield at 5%. two-year yield at 4%. on up to 5.76%. the euro-dollar is 1.0891. wonderful to see you. i want to start with the quote about the extreme inversion to the curve. you think this is not by hard growth landing? you think this is a diehard inflation landing. can you talk to me about how you identify that distinction? >> we have been doing great work along these lines. we look at what inflation is expected to do and what real interest rates are expected to do. real interest rates are high at the front end, due to the fact inflation is expected to decline so rapidly. two-year breakeven is low given how sticky inflation has been. the reason the market has been

pricing in rate cuts from the fed is because inflation is expected to fall so quickly. we have been recommending that if investors are worried, you want to be worried on the front and if you are worried it could be more persistent, front end inflation looks way to lull to us and that seems like a good way position entire six-year inflation. tom: peter codify the modern idea of glide past. out of all these relationships, curves and timeseries, are they smooth and do we glide past or are they worried about instability, kinks on the curve? >> i think you have to worry about those types of junk conditions. when you see such persistence in inflation, and resilience in the economy, you are only in one were -- in one mode.

what this typically leads to is an overshoot. we have seen this with signs of regional banks stress. we worry you can see credit conditions more meaningfully in these types of dynamics. i think you have to worry you may be too restrictive for too long. tom: my history of this whether it is melt sir or bernanke's overshoot always happen. what does the x axis look like over an overshoot? can it be modified by one fed meeting or two quarters or is it a six-month process? >> with the fed is doing is recognizing they may indeed run the risk of overshooting so it makes sense to go slower. that is one reason the bond market has been effective at taking out some cuts expected in late 2023 and the first half of 2024. the data suggest the fed needs to continue to tighten. have every risk to keep going.

they will give slightly more risk to keep tightening. the fact they appear to be going slower seems to be in the context of not wanting to overshoot. if you are a fed that does not hike too far to ask, you run the risk of additional overshoot which means you will not have to take back tightening too quickly. jonathan: how much labor should we be putting as a policymaker making these decisions? >> the fed has two areas, labor and inflation. when you see labor is so out of balance, you have to take this into consideration. and see you will not have a good chance of getting sustainably lower inflation unless the labor market is in better about us. this will keep them in hiking mode for a while. jonathan: when they say better balance, do they mean higher unemployment? >> to some extent, yes.

they know an employment rate will need to be around 4% and they need to see outright job losses or lower rate gains. they really do need to see further declines or deceleration of the job market in order to convince them they have a shot of achieving 2% inflation. jonathan: sarah house of wells fargo with us in the previous hour talking about corporate america holding onto workers. some pointing out that maybe we should be focused on the average working week in reduced hours. not letting people off but reducing their hours. is that is dynamic you would see at bank of america? >> absolutely. one of the things my team has been talking about is a piece in breadth of the hiring rate that has been taking place. we are seeing more hiring in high touch services like user and hospitality, education and

health care. the types of work that is more difficult to do remotely. that is where labor needs to be more concentrated. we saw this in adp. that shows the breadth of hiring has narrowed to some extent. you are no longer adding as many jobs in manufacturing or services or elsewhere. we think this is consistent with labor hoarding where there is at least some softening in the labor market with declines in the average worth week. tom: lindsay of shell schwab just put out a brilliant chart. it looks like shotgun pellets in a piece of paper and shows how this year is so out of the norm. it is absolutely bizarre, whatever the relationship is of the chart with real inflation. the bottom line is we are living in out of normal space. if we are out of norm, should we

be investing normally? how do you take the cabana world and bring it over to, this is what you ought to do? >> we have been recommending to clients that you need to stay underweight on the front end because the fed will need to tighten. they are not done yet. at the same time, be mindful of the fact it is an unusual world. we are not sure when the economy is going to peak. you do not want to miss it. as a result, you want to be neutral on the back and if not slightly -- on the backend if not slightly long. if you are going to be long, you want to be long real rates because he will expect inflation will be more persistent over time and the fed may end up excepting a higher level of inflation. tom: this is important. i learned this from watching the real yields with jonathan ferro every afternoon, now with katie

greifeld. i watch it on tape, on digital. the bottom line is the 10 year inflation adjusted measurement has gone up. where is the normal? >> think it looks high. tom: you think it is high now? >> yes. we do not expect this will sustain itself. tom: it will not go back to 2006? >> in the near term, you really need to see some type of positioning adjustment or softening of the data to stop rates from rising. i cannot guarantee the 10-year yield one not retest 10% real in the very near term. generally speaking, we think the 10-year yield rates of 1.8% are high historically and we do not think they will persist in the long run. jonathan: final question. why don't they send this to the

ofm see when they want to? >> they like to be a part of a consensus driven organization. jonathan: is there value in that? >> you need to be comfortable speaking out if you really disagree. seems like they have been comfortable to do that in their subsequent speeches, as opposed to when they are sitting around the table. we are getting to a point where data has become more divergent, opinions differ, and it would not surprise me if we see more disabled over time. jonathan: mark cabana of bank of america on rate strategy, federal reserve, and some comments we get out later this morning. if you are just joining, welcome. equity futures negative by 0.04% . shortly, we catch up with chris of the billion funds -- of good billion funds. then randall crows there. tom: i will go to central with

him. i solver for central bankers -- once i saw where four central bankers. is there an operative theory out there or is it like liz and saunders where we are living a completely outlier -- like liz ann sonders where we are living a completely outlier 2023? jonathan: i will go back to when the conversations were so dominant, the debate a couple months ago. now it is back to where we were pre-svb, inflation is too high taken our eye off the ball. tom: i am reading every article on commercial real estate. i don't want to be doom and gloom but it is part that we do not watch. yes, it has a new york city

bias. but nationwide, commercial real estate is crude. it is irreversible. the cycle is not like a 30 year mortgage. the cycle in commercial real estate is an amateur of seven years. it is like england, more acute. jonathan: a 30 year mortgage at 2% were 3%. take me back in time. tom: every day, jonathan ferro is the key to the 60's and 70's. jonathan: i want to go back to a public branch give me all your money. give me 2% were 3% over 30 years. can you imagine? ♪

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>> i remain concerned about whether inflation will return to target in a sustainable way. i think more restrictive monetary policy is needed to achieve the fomc's goals of stable prices and that is lower unemployment. -- lower employment. jonathan: going into the payrolls report which is coming up slowly. just around the quarter, one hour in 13 minutes away. tom: this is one of the benefits. we do no planning. john and i have no clue what will happen on the show. he really delegate out to amy

and the team as best as we can. the team was putting it together. lori logan comes up to me at jackson hole, newly appointed at the dallas fed. for our audience into this jobs day, we do not talk about how different this region is and how different each governor is. there is a culture lori logan represents in the statement about higher rates. we have a total line. versus what we hear from other presidents. jonathan: she is clearly on the hottest side. the speech took on greater importance after the speech we got yesterday from adp and the comments came shortly after the jobs report. adp was a blow out. i think people are willing to put that aside. tom: really? ok, 500,000 but they're still going up. jonathan: we have had a string

of surprises in economic data. that was just the fed needs to do more but there are some who have a different view and think this data and the beats we have seen reintroduce the rest of the risk of the fed going too far. tom: and citigroup with a lower number today. they whisper number. we went through this in the last hour and we'll do it again. for those at the bloomberg terminal, this is one of the reasons why you have a terminal. weird stuff like this. we have a whisper number. coming from 260,000. that is a tight arvest number and is nowhere near what chairman powell wants. jonathan: no, and that is why it is what the chairman is worried about. post-covid, strong demand for air travel, hotels and restaurants. during the pandemic, high-yield

making them less vulnerable to high interest rate. we discussed 20 minutes ago, u.s. households with a 30 year mortgage, high mortgage rates for home buyers are holding back supply of homes. just a couple points as to why it is taking a long time to slow the economy down. tom: right now christopher, co-cio at go billion funds -- gavelli funds. my partner is paul sweeney at 9:00. we did not have mohamed el-erian here with us today. i will go to the heart of mario good billion. for our viewers and listeners, we can feel at home that the industry is in total chaos. can the media business as a generalization wind a new profitability?

>> the short answer is yes. this is a business transition that has been around for many years. obviously, you have had a move from radio to tv to broadcast to cable and now we are going to consumer. we have had changes in profit pools and on top of that, cyclical headwinds. these cyclicals have not been good and advertisement has been around for years now. things are not looking grain companies are pulling back on some marketing expenses so this is a real issue on top of secular changes that have gone on. tom: on a people basis i have bob iger at disney looking for an extension of his contract. that i have zen's love at warner bros. discovery with a high debt load proposition. do you want to go with a blue-chip outcome like disney or with a troubled merger story

like warner bros. discovery? >> there is a tremendous amount of upside in warner bros.. the attraction is 90% of their debt is fixed. there are knocking down the debt pretty quickly but have locked in pretty attractive interest rate. they are realistic about their prospects and beginning to sell content to third parties, or resuming selling content to third parties. they don't need to stream it all on max. i think he has a good vision but difficult to implement. but tremendous upside there versus a $12 stack. tom: do you overweight it or is this a normal part of a gabelli portfolio? >> we have change the sector of as we go through this transition. there are not a lot of companies to buy from and we will see consolidation as they go on, maybe under a different ftc. jonathan: what kind of different

media companies you want? maybe something like the walt disney company with the imparts attached as well? >> one of the bright spots in media and favored for many years before covid was live entertainment and sports. they are pretty well known secular trends. gen z and millennials are investing in experiences versus things. we expressed this with our ownership of liberty braves which is the company that owns the atlanta braves baseball club and others. if you go to any of these events, they are packed and people are watching. they will pull their value no matter what the media matchup may be. jonathan: it is amazing to see the match of of services. it is not just the airlines but the cruise operators as well. from your perspective, and i

guess it is a question that applies to economics, how long will this last? pent-up demand for the pandemic that has been splurged on vacations? >> there has been a lot of concern that it will not last which is weighed on the parks of walt disney and comcast. this existed prior to covid and covid just added food -- fuel to the fire and the desire to get out. there really is not a true position to spend on these experiences. i don't think this will change. this benefits the owners. tom: the hallmarks of what mario gabelli invented was a value that is growth-y. how do you define gross within a more measured proposition? >> we don't agree with the index

keepers of growth versus value. we can add or subtract from value to on the cost of capital and most around it. we love buying as long as it's intrinsic to our market value. we have avoided traditional quote unquote value sectors like banks. both are commoditized industries. jonathan: gabelli of --chris marangi gabelli of funds. pent-up demand for services in this country has been phenomenal to witness. tom: even the people who are pro-services and pro-airlines to not see this. why is gabelli different? because it started as southside security analysts. you do not see this on the radio but over chris's left shoulder were 200 manila envelopes or

folders. that is old-school. this is what happens when you go to williams. do not do the computer stuff and bloomberg intelligence. you have a manila folder with stuff telling you about your company you reach for your company and it changes. before pdfs and computers. jonathan: 10-year yield at 4%, two-year yield at 5%. we are just going to keep talking over each other. tom: yes, that is the schitck. ♪

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>> pre-madonna. jonathan: a nightmare. you mentioned a hotel guest on vacation, you would be a nightmare. i've been in bars with you and you are trouble. tom: i was thrown out of the hassler in spain. they rolled me down into the fountain. jonathan: morgan stanley is coming up shortly. this is a snapshot of the price action at the moment. on the s&p, futures a little bit softer, negative by 0.1%. a couple of days of losses on

the nasdaq going back to late may. -0.2% right now, softer because of the bond market. the two-year is at 5%, the 10-year is for an yields surging off the back of the adp report, a blowout number. close to 500,000. everyone says the same thing, don't really care about adp and then you see 500 and its chaos. this been remarkable how quickly we have moved on from the svb malaise and that we are focused on the federal reserve hike and yields are back at levels where they were below now. they were right before the bank crisis. tom: we could to data checks all day in fixed income and i'm a

believer that asked income is always out front of equities. it was wonderful to have ellen zentner with us a few gave -- a few days ago to give his perspective. she is the chief economist for morgan stanley. 270,000 is a big number. jonathan: it is, over at morgan stanley, citibank looking for 170. all of that going into the payrolls report. they are looking for unemployment rate of 3.6%. the contingent ellen zentner joins us now,

what is a seasonal job? are you guys becoming discounting lifeguards? >> no but these months around june and july are difficult bottle to munson jobs data. -- are difficult to predict jobs data. kids are out of school and you can see it in the jobless claims number as well with some luck chu asians around the timing of summer when the kids go out and get jobs and teachers are out of school and that sort of thing so you've got that uncertainty. as you said, yesterday was a blowout adp number. even though we are near the top of bloomberg forecasters at 270 and well above consensus, you would have to get a 350 print to surprise markets because they are expecting a big number. the markets are leading the fed

toward the july hike, probably it would take less than 100,000 reported today for the fed to second-guess themselves if you will on raising rates in july. jonathan: you set the bar for the fed below 100,004 payrolls. >> that's for core cpi. it raises enough doubt that the pause could be more than just one meeting. you can see how low the bar is. that's why it's expressed in the thresholds being so low. jonathan: you can feel the committee splintering a little bit. what camp are you in? i'm sure one camp is the variable crowd who believed we have done enough. others believe we haven't done enough. which one are you in? >> we've done the deep analysis about what could be the legs and monetary policy and the greatest

cumulative impact is in the fourth quarter this year. we have been riding -- writing about the soft landing because the economy is much more cushion to absorb higher interest rates. the complacency that is misplaced is around credit, the changes in lending conditions and credit availability and that that takes a couple of quarters to show up which would presumably be around the third quarter and that something chair powell talked about as well. we are in the camp of we are not in the clear yet. tom: i will look a azentner you get a team of people over there in economics looking at jim carron's world and bonds, what are the indicators you see in the short-term yield space they give you credit angst? >> commercial industrial loan growth has slowed sharply. that is how small businesses fun

payrolls, they buy equipment, they build inventories. it has a good lead to job gains. we saw large corporations and adp that they are not hiring. i'm hanging onto my existing workforce but i'm not hiring but the hiring is coming from small business which is harder to measure and difficult to get a handle on when that environment changes in their most impacted by the changes in credit since march 8. tom:ed hyman said the same thing a few days ago and he's never been this cautious on the economy. do you share the recession call or the height but the lethargy within the system, with the imf is talking about? a flatness to where we are heading? >> i'm definitely on the optimistic side for the u.s.. i think there is a great tendency to underestimate just

how much cushion there is in the economy to withstand a sharp slowdown. that's why we are calling for a soft landing and not recession. i think the consumer is still resilient but i think we need to take a break and what we are seeing is households outside of the top income groups have taken a break from spending, we just can't see it because the top income groups have an insatiable appetite for services. they are the ones going to italy. i went to greece. we are holding up all of the consumer. jonathan: you wrote about the significance of the reduced working week. can you build on that for us this morning? how important is that at the moment for you? >> the hours work is important because it's a direct time to gdp. maybe one reason why gdp has

been running higher than gei because that would pick up more in the cut in hours work. we note there is a lot of concern out there that the gross domestic income numbers are telling us something more about the slowdown in the economy. it also tells me that our labor story we've been telling about companies not letting go of existing workers, we will build -- we have been telling story for year and reduced hours first before you let workers go in that's how you control your wage bill. jonathan: do you think it's consistent with the idea that inflation can return to 2%? >> i do. jonathan: can you explain that more? >> for a time, you will run your labor in excess of your output or right in line. that demand for labor is a balance, demand/supply is more

in balance when you are labor reporting. that puts further downward pressure on labors. we are still stuck in the same story and it's getting old and tired. inflation is high but coming down. wages are high but coming down wage growth. it's just frustrating. that's the frustration of the fed expressed in the minutes, things are moving in the right direction but we wanted to go faster. tom: the consumer is resilient. when i met you, you were definitive on the pulse of the american consumer. they are so partition because of society and technology. >> it's very partitioned. tom: it's more partitioned than years ago. >> my career started in the state it's texas studying the incidence of tax burden on texas households and i took that throughout my career. after the financial crisis, we could no longer look at

households in the aggregate. we slice and dice it by income and ethnicity, by age group because that the only way you can look at it. tom: if i say that i'm -- half of america's flat in their back, is that accurate? >> more than half. the top income quintile represents 40% of spending in the u.s.. there appetite right now -- they are the ones in italy and greece. jonathan: you are at the carlisle, i am in greece. >> the concern is when we lose them. we lose them when white collar layoffs spread and rise. we are watching that very closely.

>> near-term neutral is higher. near truman -- near-term neutral can fluctuate. it can tell you some were higher and that's where the fed is chasing neutral now. longer term neutral is more structural and that something that it takes 20 years to work out. i don't think structurally anything is changed about the long run neutral rates that will continue to be under pressure. near-term neutral and neo-makes a great point, near-term neutral is higher and that's what the fed is chasing. jonathan: kneels in a bit of trouble. it's payrolls friday, he's on vacation with his wife, it's their 10 year wedding anniversary and is locked into the bloomberg terminal. can we wish neil and the misses a happy anniversary? tom: i'm going to tear up and

get emotional. jonathan: he's in a little bit of trouble. we will get him on the phone. we will work that out. it's a privilege always every payroll friday to do this with you, ellen zentner. the jobs report is about 47 minutes away? tom: they are all different. i've never seen this about the adp. which adp report did we see yesterday? did we see one that everybody suggested was screwed up or is this a new one that has accuracy? we will get approved point at 8:30 a.m. jonathan: just enough to make you nervous. tom: absolutely. jonathan: people were looking for july for a hike anyway. tom: zentner was flyfishing somewhere and said let's raise rates. jonathan: on the s&p, slightly negative.

coming up shortly, the payrolls report. neil will be with us and is not in trouble anymore and maybe he can talk about that later. we are going to hear from the former fed governor looking forward to his take on things out of the jobs report. tom: what he would say and ellen zentner is nobody has a clue with that uncertainty is out there in a pandemic america. i cannot say enough about the importance of the liz ann saunders chart today on real yields and it clearly shows how unusual is 2022. this is about the pandemic and i would suggest it is still about the pandemic. jonathan: we need to talk about the politics as well, where will

the labor market be? what about november next year going into the election? terry haynes is coming up shortly. tom: we had our first meeting yesterday, folks, on the political path to the first tuesday of november. it's a promise with the republican debates in august. jonathan: do you want to talk about how that meeting went? tom: can you imagine moderating a republican debates? jonathan: it would be entertaining. tom: i would have to have extra tang for that. jonathan: terry haynes is coming up next, future slightly softer and payrolls still ahead. ♪

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for too long, china has dominated the production abroad materials needed for critical products. that's why we are building across the world. jonathan: the president of the united states industrial policy, something we've got to track for the foreseeable future and going into the election campaign over the next 18 months or so. welcome to the program, we're counting you down to the payrolls report which comes out it 8:30 a.m. eastern time, 43 minutes from now, looking club for close to 230,000. markets are developing as follows, equities a bit softer but no drama. not even down by 0.1%. 5% on the two-year and encouraging that the fed is set to hike again. they may hike in september as well? tom: we will see the data at 8:30 a.m. and it's how it will be addressed. do you still talk to the

secretary of labor at 9:00 a.m. jonathan: the acting labor secretary. tom: can you talk to walsh about the national hockey league? jonathan: we can try to get him to talk about that. tom: i like your interview because you didn't do it like an american. jonathan: not everyone is a fan of that. tom: we are deferential to terry haynes, founder of pangeia. i am bit dazzled by what i would suggest is a focus on what i will call the far right, like an old fossil. then you got the far left and i will go to the vice president harris in the news flow of the last 48 hours where she is speaking to one part of the far left. is anybody speaking to america's middle? the spiro agnew, the silent

majority on both sides of the aisle -- is anybody talking to the middle in the summer of 2023? >> you two are not the nattering nabobs of negativism as the president called the news media. yeah, they are trying to but they tend to get drowned out by the extremes. i always say there are two political parties in washington. what you saw in the debt spending deal in the spring was a triumph of the centrist with people coming to gather over those folks. they are trying to speak to them but they tend to get drowned up by the bread and circus on both ends. tom: we are going to the first calendar which is the august debate of the republican so will they speak to their far right or will they actually try to address anybody in the vicinity

of the middle? >> i think they try to do both. one thing i see in the republicans and i saw a desantis quote that illustrated this is i'm not going to try to puff up my poll numbers in june or july. i'm focused to win in january or february. that's what a lot of these folks are doing. they are trying to fuzz things up a little bit so they essentially keep the far right kind of quiet and understand that there's patriotism at work here from the nominee. at the same time, they want to move toward real centrist policies in talking about what they would do going forward. there is a real market for that. one way you can interpret whatellen zentner said to you is that there is 2/3 of the public that are not really being served by what's going on. that's a thursday audience that

wants to hear from new blood in the republican party and the democratic party, frankly. jonathan: we will hear from some of them the next month in the first debate. people might be waiting for the field to be reduced and how quickly can that happen? >> chris christie gives a good summary of this, the idea is essentially that you get into your first couple of debates and after that, if you don't land and you don't start expanding your voting count and your percentages, you will get pretty quickly start of the money you need to continue. i would look for this field to be substantially whittled down before the beginning of the year. a lot of these people running for cabinet posts and for their own prominence in the party. from their perspective, that's not a bad thing. jonathan: many people have already written off governor desantis but it's still early

days and things can change after the debates. your view on the governor of florida now, where are things going? >> i think being a viable and clearest second-place is not a bad place for him right now. i think trump set a high watermark in one way to look at what's going on in the republican party now is you've got half were 60% of folks that already want a trump alternative. if they see somebody they think is viable and they think can win, whether it be governor desantis or somebody else, i think that will work for him. tom: i am fascinated what you would advise the former governor of new jersey, is kristi, a former catcher in baseball, he's a little bit bigger now i think to be the backstop on a wild pitch but what would be your advice to chris christie to gain momentum? >> really two things, one is

that i think he's taking on the role of the anti-trump and making the case forthrightly and i think that's what you need to do and i think that helps him. i also build out his economic message. he is great at saying he compromised with the democratic legislature in new jersey but that will not cut it for a lot of republican primary voters. what needs to happen for him as he needs to talk more about what he would do economically and how he would help that 2/3 that don't feel helped in the economy. tom: is it a penalty for him to be from new jersey? forget about florida or the other states, it's a whole new calculus, isn't it? >> you are absently right, it is a detriment being from new jersey. frankly, he needs to talk more about his record. you need to talk more about what

he was trying to do in new jersey and how he breached those gaps. bipartisanship is not the end goal but it's part of what was necessary to do what he wanted to do and how he would do that nationally. jonathan: a word on china, there is a new word and last 24 hours, it's diversified from janet yellen. does that set the stage for a meeting between leaders later this year? >> i think that's a good one. my view of the china business is that china is rope doping the united states along i think it's more likely than not they get that meeting but it is not likely we get any incentive for it. tom: my take away is the way terry haynes through shade on new jersey. >> you through shade on new jersey. it's you.

jonathan: it's a detriment to be from new jersey. >> and the republican party? sure. jonathan: terry, it's good to catch up as always. this will ramp up later this summer and it will come up quickly, it's already july. tom: i think everything has shifted for three months. i think february election year will happen in november and december. we've got a little bit of history now with 12 people on stage or whatever the number is. it'll be a few cycles and the key for mr. haynes is it will get winnowed out quickly but who says that? they want to get rid of us but we love the lights. jonathan: i love to hear from team trump on one issue. does the former president need to go to those debates? what's the value there?

does he need to go? he's got a solid lead. tom: given the potential litigation, what is the upside for him to be in a debate right now? i don't see it. jonathan: it's jobs day. payrolls are just around the corner. 230,000 is the estimate. a great lineup of guests coming up for you. equity futures, stocks are negative by not even 0.1%. ♪

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it's an amazing thing when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> these are periods where you are seeing a lot of chop and economic data. . >> there is not yet enough labor shedding going on.

>> if the fed is looking to loosen the labor market, we are not seeing that in the data. >> we are still looking at a tight labor market right now but i think there is continued pressure when we look at the stance of monetary policy. >> this is bloomberg surveillance. tom: good morning, everyone. we are on radio and television and it's jobs day and bramo is portaged on the racket river. the deer flies are so big. jonathan: i get eaten alive by mosquitoes. tom: but they are italian mosquitoes. the gelato keeps them away. moments ago, we showed you how unusual this is. ian shepherdson of pantheon has been wonderful, payrolls are total wildcard. jonathan: particular after the

report we got yesterday from adp which was or hundred 97,000. the estimate this morning was 230,000 in the number drops and the number drops in 29 minutes time. people are looking for a fed hike in july but the numbers would have to be terrible to reintroduce that and they would have to be sub 100,000. tom: citigroup just republished this before the report discussing the jobs. a lack of loosening is not evident. jonathan: that's not compatible with a return to 2% inflation. for me, i think this is important, this is less about july and less about september but it's about setting the stage for policy beyond them when the chairman has to go to jackson hole and potentially deliver another address.

the chairman will have to deliver a message in jackson hole or percent -- or perhaps september but that's a different game. tom: it gets us to the drama of november. this lack of loosening and the continuum of the data we will see in 27 minutes, a lack of loosening is the heart of the matter however you want to look at that data. it's not happening. jonathan: three .6% unemployment is the estimate today, down from 3.7 in the fed had employment year end at 4% and that has come down. they are about to completely change their view based on how resilient this labor market is. tom: this goes to the interview with the acting secretary of labor today and the idea is a partition in america. we can talk all we want about

business class on the airlines but forget about it. more than half of america is a general statement and they are flat in their back. jonathan: people are struggling and if you are a dead tour, that means nothing to you at 5%. there are two different worlds right now with 5% interest rates and it's affecting people differently, not just in the u.s. tom: some of us memorize the functions of the bloomberg terminal and jonathan is better than i am. i have a speed index that revolutionizes things. moments ago, we had a 30 year bond leap above 4%. it happened yesterday mid and has come back in the benchmark 30 year bond four point 01%. i looked at the new high on the

30 year mortgage. jonathan: it's not just the front end of the u.s. curb at the front end of the u.k. coeur. -- of the u.k. curb. - curve. there is a conversation this week that the bank of england rate could go through 6% over the next nine months. tom: this is not a vin scully remark. i take the point of a number of people and when you speak to dr. el-erian today in the 9:00 hour, this will be interesting. it's almost a panic move that has stochastic character to it. it's not like a lift in the u.s., it's a spike up. jonathan: mohamed el-erian wrote a new column about the alliance over dependence on monetary policy to address the demand side of the inflict -- economic

equation and not being open to do something on the supply side. that will be something we have to talk about more and we will do that in about an hour's time. tom: i'm looking at 105 beeps less of an inverted curve. 1.80 percent and about bank of america was brilliant. jonathan: the fate of the session is dictated to some extent by the payrolls report with drops in about 20 performance and equity futures with stocks softer on the s&p 500. you see nominal yields are higher by three basis points. tom: we start strong in this jobs report half hour. ubs global wealth is with this.

let's bring it over to equities. the pullback we have seen recently is at the end of the surprise bull market were can you own equities through this jobs report into q4 of this year? >> i think you can own equities but you have to be selective in equities. you make a great point around really yields and seen the market fly in the face of higher bond yields so far this year and stretching valuation. this past week, the economic data we got, we're starting to get a gut check that's causing the market to reprice growth and what it means for the path of monetary policy. a stronger economic environment can mean we could see a faster recovery in the earnings but what do you pay for those earnings. the valuation is still too high. tom: you beautifully frame it. if we get the kind of economy that seems to be with us now,

does that sustain nominal gdp, topline gdp, and does that sustain revenues where everyone will get wrong once again the earnings going? >> the earnings have been coming in better than expected but they are still negative in the first quarter. in the second quarter, the consensus is looking for a 7% contraction we expect that to come in better than where the consensus is given how strong the economic environment has been. when you look at the back half of the year, we expect the economy to slow down and we are also expecting inflation to improve. we are looking for core cpi to be 3.5% by the end of the year. the inflection you are seeing in earnings in the consensus number at 8% growth they are looking for in the fourth quarter, we don't think that's likely. we think there will be more trim to come on the back half of the year. we think earnings will likely

beat but you won't see the same follow-through in terms of the price reaction. jonathan: where would you expect resilience to be within the equity market? >> in our preferred sectors, we recently upgraded the energy sector in the last couple of weeks because we think a bearish outlook is priced into that sector. prices have struggled year to date given the supply that's come into the market, stronger than expected from russia, but you are starting to see the impact of the production cuts from opec-plus where we've seen crude export at a one year low and that's likely going to go lower the tickly as saudi arabia and russia implement additional cuts. we think there is opportunities there within energy. the energy companies are still having drunk -- strong balance sheets and dividend cash flow. we like the oil services companies and some of the integrated ones.

the numbers have come in far enough for energy and that could be a good set up in the back half of the year. jonathan: that could be hard to digest for some people that you're looking for a downturn of earnings and an economy that won't do so well but you still like opportunities and energy, how does that add up area >> it's the global economy. even though you might see some slow economic growth in the u.s., over all, our optimism remains high we think this imbalance in the market will correct itself we are looking for a deficit in the second half of the year so some of it is the supply coming down to be able to have the market deficit in the second half of the year. it's a bit of a contrarian call but we think the energy sector is already priced in for a depressed environment, more subdued growth. tom: everyone says we need to

buy quality. what is quality right now? >> the companies that have absently good free cash flow generation and more resilient earnings and overall stronger balance sheets. even in tech, even though we have a preference in tech, we don't necessarily go along in tech companies. we are focusing on the quality companies, the defensive areas of tech and rotating out of the more cyclical areas of tech. overall, good free cash flow generation and a return to capital as well which defines what we think is quality companies. jonathan: identify the key distinction, defensive and cyclical, which is which? >> within tech, the more highly cyclical areas are the semiconductor sector. it's outperformed year to date. we are advising clients to lock

in some profits there and rotate into the more defensive laggards so software companies. we have had an ai frenzy and we do like ai longer-term but we want to be more selective at this point. we still see some opportunities for more within the network areas of ai. tom: can you see 85 pages on ai? she will go to the office and say jonathan: why do they make them do that? tom: to punish nadia. some grizzled guy in the hamptons calls her. by labor day, we need 85 pages on ai, that's how it works. jonathan: do any -- does anybody read it. >> by labor day, generative ai may need a paper like that. jonathan: thank you so much. i once did a conference on this

with the research team at socgen in paris. it was nine or 10 years ago. a guy said he wrote this long pdf and was not associated with stock in. it was a conversation of how to improve the research and he said he had done this long pdf and at the back he put a note to see if anyone had read it. no one ever read it. tom: how do you read a research report? if it's for pages, find one paragraph and of its 12 pages, one or two pages, etc. jonathan: welcome to the program, equity futures are -0.1%. coming up in about 70 minutes time, the payrolls report going to that, we will catch up with the former fed governor. michael mckee just came in so you know it's game time. you know it's summer.

michael mckee after memorial day weekend, bang, every single time. tom: it's true. i like what ian shepherdson said, nobody has a clue. stay with us, it's a mystery. jonathan: it's like the worst kept secret on wall street. tom: you've got to be here at 8:30 a.m. and michael mckee will tell you how the rest of the day will go. jonathan: from new york, the payrolls report just around the corner. ♪

>> if you just step back and look at this labor market data in particular, we have surprised month after month to the upside and we continue to see the jobs number coming in stronger. if the fed is looking to loosen

labor market, we are not seeing that in the data. jonathan: looking for a hike this month and a hike in september, the data is 14 minutes away, the payrolls report coming up shortly. equity futures, stocks are a bit softer but not in a big way. yields have been moving dramatically higher. it follows adp yesterday. they were searching for the first few hours with yields up to or percent on the 10 year at four point 06% on the two-year, up three basis points through 5% on the two-year which is quite a development in the next -- in the last couple of weeks. tom: it is a shifted data screen. we have equities, bonds currencies and commodities. it's simply a change screen with the 10 year inflation-adjusted yields stuck up three beeps. one point 80%.

jonathan: we turned the volume up on the jobs report yesterday with blowout numbers. tom: uncertainty is an order and that's a good place to start with randall kroszner. the interns have invaded the building. out of babson college and that intern said what should i read. i said you've got to read peter bernstein which is required in chicago on risk and uncertainty. tell me right now how uncertain you are about the american economy, the american labor economy, the jobs report post-pandemic? >> i think the uncertainty is pretty high as you guys were discussing before, it seems like the labor market should have started to slow down a bit but we haven't seen much evidence of that.

with the adp numbers yesterday and other numbers suggest the labor market is still pretty hot area there are long and variable lags is my great predecessor at university of chicago milton friedman had talked about but these are really getting to be long on lags. you think you would've seen something by now and that's the uncertainty. how high will the fed have to go? tom: if the fed is how high they have to go, are these normal meetings forward or the people that worship your financial economics, do they have to amend every discussion as they get out to the november 1 meeting? >> they've got to try to see if there are structural changes in the economy. i think there have been at least some changes whether they are permanent, structural or not we are not sure. probably something structural for the labor market. we see lower labor force

participation in some say there's no way i'm going back to labor market. so many people didn't make it through covid and i want to see my kids and grandkids. we have also seen with the low interest trades during the pandemic and coming out of it that everybody refinanced. normally, you have the transmit -- transition recognition of the rates that so many people refinanced to very low fixed 30 year mortgages, it doesn't matter as much of the economy that interest rates are going up because people's income is not being affected bike that -- by that or a smaller fraction is. jonathan: what is the appropriate role of the federal reserve with that backdrop? >> it might mean that they need to go further than in the past.

i don't think they will have to go as far in the late 70's or early 1980's because they started before inflation expectations got out of control back then. inflation was in the low double digits and had to bring in rates to 15 or 20% because the fed had lost credibility. inflation expectations were not that much that's a positive but it may mean the need to do more work in raising rates to get the same impact on the economy and taking some of the heat out of the wage demands. jonathan: this debate comes down from one or two hikes. 25 or 50 basis points is nothing so what kind of numbers are you thinking about? >> we will see with the data says about the labor market. maybe it's about to crack. if it doesn't, they will keep at it and i think they will end the year closer to six rather than

five. tom: we will get a jobs report, we will talk about the econo babble but i want to bring it over to finance and what you actually teach of the booth school. can you tell the students entering last week of august or when they get through their eight week orientation, can you tell them we breezed financials stability? that -- that we reached financial stability? >> we are not sure. get back -- it gets back to the uncertainty. with the rapid increase in interest rates that had an impact on silicon valley bank, they thought they were geniuses by buying long dated securities, that was fine until interest rates went up so much that the securities plummeted. you got other institutions that also effectively had long-term fixed rates on their balance sheets. commercial real estate will be a challenge.

we will see how that plays out and when we start getting the next round of bank earnings reports, there may be a little bit of tumult around that. tom: i look at the stress test as a comedy. i don't think they add any value at all. esther svb, from where you sit, have we seen and enhanced financial supervision? is there something new in the religion of looking at banks after what we saw a number of weeks ago? >> one thing they are now focusing on his interest rates. other signatories to the basel three regulations, the standards that came out from the financial crisis is related to interest rates and interest rate risk. we didn't have that in the u.s. so i think that will be the key thing that changes in my hunches my former colleagues at the fed and the other regulars are

keenly focused on that issue than they were before. jonathan: stay close, the jobs report is seven minutes away. michael mckee will be with us around the table. tom: do you not know it's going on? mike: they change the system, i don't know what's going on. i was on a little while with you guys and the whisper number was 270 and now it's 280. wall street is clearly leaning into the idea of a strong payrolls report and i was mentioning earlier ben emmons has a model that shows 734,000 jobs. that would be fun. tom: who are the people that combine the whisper number? mike: it's anybody on wall street that has a bloomberg terminal.

i'm sure we get herd mentality. tom: so we get the expert whose big on dollar-mexico commenting? jonathan: it the comments coming from many places. tom: you know there will be upward revision we saw that from 230-225. a lot of these are not was to the economist who are constantly updating. jonathan: or following adp? jonathan: notes came in after adp and some said they had to change and some did not believe the numbers. jonathan: will we believe the numbers that comes out in five minutes time? mike: is -- are the labor numbers accurate? the birth/death numbers, it's a plug-in number the labor

department puts in, guessing at what the new job formation is with the company going out of business and they don't really know that tends to be inaccurate around turning points. jonathan: interesting, michael mckee on the jobs report in about 4.5 minutes time. equities are a little bit softer , -0.1%. if you go to cash, you can pick up some yield. the 10 year is through 4% in the last 24 hours following a blowout adp report. the estimate is 200 30,000 in the bloomberg survey and the number is up next. ♪

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jonathan: the jobs report in america is seconds away. equities are a little bit softer, negative by 0.1% with phenomenal moves in the bond market. the two-year through 5%. the estimate is 230000 and the payrolls were work right now. mike: we are waiting for the numbers to drop, two hundred 9000 is a lot lower than anticipated and a lot lower than it. 339 last month the forecast was

for 230 so this is quite a surprise. private payrolls, 149,000 would compare with the 497 thousand. manufactory is up seven. that's a change from the month before in the on employment rate falls back to 3.6% which had been forecast. it's unusual to see unemployment dropping when we are waiting for the fed to keep raising interest rates to push it up average hourly earnings come in stronger . that puts it at 4.4% which is not the direction the fed was hoping for, that's of from four point 3% in the prior month. last month, now revised down to 306. a little bit weaker for the last two months in the change in

manufacturing payrolls which was negative's note negative three. the average hourly earnings revised up for may. we are unchanged basically between june and may. what we are looking at is a little bit -- a lot weaker than anticipated. the first months in the past 15 that is come in below economist expectations. tom: to the markets here. jonathan: equities recover a little bit and they turned positive on the session, up by 0.1%. payrolls at 209,000.

of the back of that, you would expect dollar weakness and you have that. downside surprise on payrolls but unemployment is lower, average earnings higher than expected, average weekly hours worked a little bit longer as well. important developments on that front, michael mckee will have something to say with that. tom: ellen zentner nailed the impossible. this is the slowdown she was talking about which was an outlier 20 minutes ago but with 110,000 revision. mike: the april numbers were

revised down from 294,000 to 217,000. may was down 33,000. from april, may and june, you see weaker -- a weaker labor market than people thought so this will probably have an effect on the fed even if the average hourly earnings are not specifically changed. not much change in the unemployment rate. it did go down and we saw 220 thousand new jobs in the unemployment survey and unemployment fell by 47 -- by 47 -- by 40,000 so we reversed last month. this will raise questions of soft landings and things like that if we continue like this. construction spending -- construction hiring up 24,000. the homebuilders really keeping the economy going and the other

big employer was government, up 60,000 on the month and little change, gain of 21,000 for leisure and hospitality. adp was way off this month and i don't think anybody is surprised to hear that. the labor market has clearly slowed. jonathan: stocks are turning positive off the back of this data and coming up in the next hour, we will catch up with mohammed for larry and and our other guests and later that hour, we will etch up with the acting secretary of labor as well. we will get a view from the white house later this morning. tom: i think we will see softness with the revisions but they have to go to some kind of information. we have randall kroszner with

us, and expert on our financial economics. i look at this report and we are finally seeing some wage -- nonfarm payrolls listening and that buttresses against rising wages. how was that building at the table? >> as mike was describing, the wage growth is still stronger than the fed would feel comfortable with because they want to bring inflation down to 2% of wage growth was revised up last month, is still strong at 4.4%. that will give a lot of people some concern. they will say we need to move forward even if we start to see a slight softening of the labor market. maybe this will be the turning point and maybe we will remember this is the last time we had a

strong report and the last time we had an overshoot and then the market will weaken. they will want to see some evidence that the wages are going down. i look at should cargo and there was a professor there, austin goolsby was brilliant and that course. what's the level of humility this fed has to have? can they take what we see now of a nonfarm payroll slowdown and use it as one point or do they have to see some kind of moving average? >> they don't overreact to one number or one revision so they will want to see a sustainable trend downward in which pressure. if they see the labor market is starting to weaken and that the unemployment rate starts to move up a job growth slows down, they

will start to feel comfortable that wages will move down but they will wait i think to see wage growth move down before they say all clear, we can just stop. they will just stop, they will not be cutting. the markets don't seem to believe it but i believe they will hold it unless there is a cataclysm. they will hold rates where ever they finish in the mid-fives. they will hold it there for a while. tom: thank you so much. so helpful to us on jobs day and often when the federal reserve meets. green on the screen, a lot of movement in yields with the two year yield it comes in with a nice vengeance from a five level , 4.95%. less of an inversion on the curve.

the jobs report is 47 pages. what do you see? mike: the average weekly hours rose 4.4%. there had been a storyline that employers were hoarding labor and did not want to let people go but we are cutting back on their hours to save money and it seems they were busy enough to get them back to work area the interesting thing about unemployment rates that comes through is it is the lower socioeconomic groups that are losing ground. for the race groups, it goes up from 5.62 six an asian goes up to 3.2%. white unemployment is lower at 3.1%. you look at people with a bachelors degree or some

college, unemployment went down for them. those with less than a high school diploma or no college, it was unchanged or went up. this has some of the starting characteristics of may be a labor turnaround because you are letting the last hired to be the first fired. tom: joining us is the chief economist and it's a hallmark announcement with the revisions. this is simple math. 209,000, takeaway 110,000, can you frame this with the revisions? >> i think it fell well short of expectations in the report with that being said, is still a solid headline number. for the fed, the focus is not

the top line nonfarm payroll report. they are looking at the details and the inflation or components in with the on climate rate declining him a wage growth gaining momentum, this is the exact opposite of what the fed wanted to see. this keeps the fed on the path for an additional rate increase later this month and depending what we see from the inflation data next week, we could see another great increase shortly thereafter. tom: our audiences are saying wage growth, 4.4 percent, takeaway fiber 6% in laois and and the answer is they are not getting ahead. which nominal wage growth does the fed need to see? two point 9%? how low do we have to bring down wage growth? >> if we saw a to handle, the fed would be comfortable with that. i think that would give the fed confidence that we are on a sustainable downward trend. that's what the fed wants to see

is not about getting inflation under control from eight down to six, is continuing the trajectory back to the 2% target. tom: on a 2.9% nominal wage growth, we are distant from that? >> absolutely in one of the biggest fears for the fed is that wages are continuing to rise. growth is continuing to accelerate without any improvement in productivity. there we start to see this wage price spiral leading -- leaving the economy behind. growth is slowing bit of underlying wage components continued to in raise, what is the economy gaining from that? if the supply of labor follow short, wages go up and we are not adding anything to the economy. tom: we've got some flight and is on the data screen. features are at negative eight in the negative -- and a nasdaq is barely to the green side.

there is movement in the yield space. the 10 year yield is four point 0%. it's really a shock to see them this high. how many corridors -- 209 is still a substantial nonfarm payrolls number but if we develop the three-month moving average of 190,000, my reading is that doesn't get it done for the fed. >> where are the wages at that point? wages is one component of inflation but we need to get that under control we need to see that tight labor market conditions ease so the fed feels more confident that wages will begin to ease. that doesn't mean they will tackle overall inflation just by getting the labor market to become less tight. there are other components of inflation. that is the component the fed can control. that will determine the terminal level.

the other components of inflation will determine how long the fed is poised to maintain that elevated level of risk. tom: give us the granularity of the racial makeup of jobs with higher unemployment and some jumps there among minorities and on the education -- and on education basis as well. the stereotype of financial medias we have a lot of service sector workers still being employed. do you buy that or is there a different story? >> when we look at where the most unemployment is gaining momentum, that's at the lower skills level. we are starting to see technology replace the lower skills. this was happening before the pandemic but this is a trend that has been exacerbated more recently. i also think we have not yet seen the cyclical component suggesting that weakness is lurking around the owner. -- around the corner. leisure and hospitality are still posting a sizable increase

in that would be assumed to be the one area where we would start to see the week -- to see the weakness. we have not seen that quite yet. tom: is this still a pandemic-tinged report? >> i don't know if we can necessarily say the pandemic is implementing this report but i think the aftermath of the pandemic, the change in psychology is impacting this report because we are still see man's of workers sitting on the sidelines not actively participating as we would expect in the traditional manner in the labor force. we need to still think about providing an incentive to pull some of the sideline workers in that may help to expand the labor supply and or yeah nightly reduce wages. we are not going to see that downward pressure unless we see demand for labor precipitously declined for the supply of workers dramatically increase. tom: thank you so much.

we will have her report later today. michael mckee is up through page 25 of 42 pages and there will be some other things in here. mike: there is a lot you can look at in here. what happened in the unemployment rate? we saw the labor force rise by 133,000 but more people got jobs and last month they lost in the household survey. it was the reverse in unemployment with the level changing. the prior month was up 440,000. there is always this tension between the household and the establishment survey and given the arguments of economist about what the fed should do and whether the labor is strong or not, what you probably want to do is pick a side, are you a household person or are you and establishment person?

most people would be at establishment person. tom: the bond market has been front and center since the adp report. we subside off of that slightly in the survey was 200 thousand with the whisper number higher. he came in nicely off that. 209,000 the critically with a negative revision as well. it has moved the bond market which means the good time to speak to ira jersey a bloomberg intelligence. is the two year yield the value to study at 5.05 percent, plunging down to 4.97 percent? does that give you an indication of the pulse out there? >> the two-year right now is pricing for the federal reserve to hike two more times. around 5.08 should be fair value if the fed is going to hike to

5.5% primarily because once the fed hikes, the market will keep pricing for interest rate cuts at some point in the future. we keep rolling forward when the interest rate cuts will be. it's always going to be six months after the hikes and but we keep pushing out when hikes will end. right now, assuming the fed will hike two more times, the twos are not rich or cheap. if they only hike once the twos look a little bit cheaper. tom: help us with what we see farther out. the last time we talked about a 4% 30 year bond. that's when tottenham was winning. i got a higher yield regime. does that have a stickiness to it? >> yeah, the long and for the rest of this year is unlikely to move much out of the ranges we have established for this cycle. we are coming to a pretty

important technical level for 10 year yields at 4.09%. that means if we break that, we go to about 4.25%. these are ranges we have established over the course of the cycle where we are looking at 3.5%-4.25% where we can stay there. the front end of the curve right now is what's driving the yield curve inversion. two-year yields are so high in the long end is hovering at 4% plus or minus. tom: you said it better than me, are we breaking out of the range we been in on these various yield metrics? are we breaking through to hire regime? >> temporarily, yes. until the federal reserve stopped typing interest rates, it will be hard to go back and retest the 3.5% 10 year yield.

given that we are saying that the fed's terminal rate will be a little bit higher than the entire yield curve has to shift a little bit and that's what you are seeing. the front end is where all the action is, going from, we've gone about -- up about 80 basis points and yields the past couple of months on the two-year but the 10 year yield is maybe going up 40 basis points. tom: the united states is a certain lift to the two year yield. i would suggest it's radically different than what we see in the united kingdom and the two year gilts. . does the two-year yields lead the discussion going out? does it lead? >> the answer is no. it's the belly that leads, you

mentioned the three and five year and that tends to lead because you have more future expectations built into those yield rather than the two-year which will be highly influenced by the policy rate and what's going on. you look at the five year, we were rallying when we were thinking the fed was almost done. the fed will cut interest rates next year and more aggressively in 2025 so the five-year rally and now you see the belly of the verb underperform. that's in part because everyone is saying we might have this higher rate regime were not only is the feds terminal rate higher but maybe they would terminal rate there longer than we expected. market was not believing that thousand months. now it seems like everyone is saying that we now believe the fed and we will trust them. tom: if we believe the fed now, are we believing yields move up and migrate to somewhere near

6%? >> very few people at the fed>> think they will hike the 6%. the yield curve will remain inverted in my view at least until the federal reserve cut -- cuts interest rates. one of the reasons is the market as of the believe that the fed will be successful at some level and we will see lower inflation and lower growth at some point, they will stop hiking in the next 25 or 50 basis points and then the next move will be a cuts. the market will prepared -- will perpetually price for that. you might see a higher rate regime. we could certainly see -- we will probably not see a five or 6% in the 10 year. tom: a question from michael mckee as he looks at the data. he is in the real world unlike

you. >> how much expectation for the fed pushing around the curve on the short end are we seeing people react to the jobs report? where are they reacting to the idea of what the fed may do with it? >> whenever we ship these data releases, it's obviously the payrolls or is the granddaddy in the market reaction tends to be twice as large to any miss or be than the next most important data release. cpi next week will be an important factor as well so is the incident -- the instantaneous adjustment of the market expectations of what the data will do and what the economy will do. initially, we saw the massive rally in the front end on the two year yield. we then came off of that after

we looked beyond that headline number. it's actually more of a mixture. it's nuts as stay week jobs are work when you look at things like the wage data and some of the hours worked data. tom: really emphasizing the wage data with the inflationary push. thank you for the brief ira jersey. he and his team will be publishing into the afternoon on a new bond regime. red and green on the screen and the vix is 15.38 and the two year yield is 5.05 4.95% and the 10 year yield above or percent. we diss invert over the last 48 hours for the two and the 10.

i can't believe i'm doing this micro adjustment on yield as well. holding court for bloomberg in washington, we are thrilled to have you join us. he had to survive the most intimidating undergraduate program which is douglas irwin and foreign trade and air trade wars and trade economics. ed harrison joins this morning from bloomberg. i look at the report and i look at how you apply it into the real world and what to do at bloomberg markets. i love your phrase duration seekers. in your recent report on duration seekers, what are the yield hogs doing that desperately want to go out 42 years? >> yes, i think the yield hogs

are looking to pile into the long end of the curve, thinking now is as good a time as any to do that. up until this report, i would have said that's probably premature. this report confirms some of the weakness i have been seeing in the data. if you look at the rolling 12 and six month numbers of unemployed in the united states through the data back to 1948. you see that number actually declines to a low right before a recession, sometimes read the beginning of a recession but usually right before. what we've seen is that in april, we had that low. the data that came out today confirms that both may and june were higher on the rolling basis. that says that maybe those yield hogs are correct that now is the time to get into the long end of

the curve. tom: this is the heritage of our washington news bureau. i look at what you guys do and it's always history based. what is your study of the if and when of how we diss invert? we have a massive curve inversion and i guess at some point, that will go away. when we diss invert from 105 beeps to 91 right now, how does that happen? >> that is a good question because we have had some steepening and that has caused the three-month 10 year to diss invert 60 basis points. ira was right on the money when he talked about the cuts that are the real diss inversion we are considering. the question is whether that this inversion happens before or after a recession.

in the post-greenspan were posed paul volcker area commit happens before the recession. we see a diss inversion beyond zero so we have an upward slope of the yield curve before the recession. this could actually be a recession that's more akin to what we saw in 1980 where the fed keeps it tight until the recession and even after. tom: what will you write about today and into the weekend? you never know what you will get from harrison. what are you thinking about writing? >> i'm thinking about this is a confirmation we have more weakness than we had thought. there is a lot of angst if this cycle will continue and how much longer will it continue? everyone has been wrong about where the cycle has ended. when i look at the data the came out today, it's more confirmation of the fact that

the cycle is very late. tom: ed harrison, thank you so much. you can see his work on the terminal. it's really eclectic stuff about how ed harrison out of dartmouth and columbia, how he applies this the condo babel -- this econo babel into a flight investment that has a value. we will review this right now and tell me how i'm doing on time. i want to be sure we try to get the whole story. futures are tepidly weaker, s&p futures are weaker and the yield space, it's just a jumble. i've a higher yield on the two with significant diss inversion. the real yield back to 1.80%. the acting u.s. labor secretary

is with jonathan ferro next hour. good morning, this is bloomberg. ♪ >> anything you need to the start of u.s. trading. this is bloomberg the open with jonathan ferro. >> county down the u.s. child's reports, coming in soft yields nearing 15 years highs. we begin with the big issue. payrolls in america. >> you have