ceo tim cook is there a crisis of confidence in cupertino what happened to that half trillion it's friday, january 4, 2019, "squawk box" begins right now. ♪ live from new york where business never sleeps, this is "squawk box." good morning welcome to "squawk box" on cnbc. we are live from the nasdaq market site in times square. i'm becky quick along with joe kernen and mike santoli. andrew is off this week. we have big news out of china this morning the futures this morning, you can see the dow is indicated up by 290 points. this comes after decline of 660 points yesterday that was down by 2.8%.

the s&p was down by close to 2.5% then it was the nasdaq that got hit hard it was down by 202 points, a decline of 3%. worst daily performance since december 7th of last year, when it was down by just more than that the nasdaq is bouncing back this morning. the news out of china, the united states and china will hold trade talks in beijing. on january 7th and 8th china's commerce ministry making thatnnouncement today. and over an hour ago, the pboc saying they will cut reserve requirements by 100 basis points as the government looks to counter risks of a sharper slowdown yesterday we spoke with michelle caruso-cabrera who talked about the shadow banking the crackdown there and the impact that's been having. this may be one way to get some liquidity back in the market >> the peoples bank of china

trying to refresh the market over there some are commenting this is a relatively expected move related to the funding operations there in china definitely was taken by the market as something of at least there's a push back to the slowdown story >> yep let's look at markets. the nikkei down by 2.26. and the hang seng up by 2.24%. shanghai up by 2.05% and in europe, the dax up by 1.5% stocks in italy up by close to 1.9% stocks in spain up by 1.5% gains of better than 1% for the ftse and the cac. looking at treasuries, this is where the action was yesterday. the ten-year yield has tumbled yesterday it was trading below

2.6 most of the day. in the afternoon, there was an equity rally attempt in stocks through the afternoon yields continuing to press. right now it's firming a bit the yield is up about 2.60 and change at the moment i thought that flattening action after that weak ism number, i think it got a risk off tone to the markets. we'll see if that was people backing away from the jobs number this morning. >> weren't we inverting -- >> we were inverting on the curve. even the three-month to ten-year, which a lot of folks were saying don't look at the two/ten -- that's compressed as well >> i'm just annoyed about a lot of things. everything is negative i'm thinking china let's say it's not china let's say it's apple's own problems kara swisher wrote that piece, it's over for apple and the

upgrades if it's china, then the dmroeb globe is slowing down. if it's 150 or below, it's holy crap, there is a problem if it's 250, it's my god, the fed has to do something. this is way too good way too much prosperity. step in here stop this. why would they do that >> if the market is drawing up the wish list, it's good jobs number, wages are fine, powell says we're data dependent. doesn't matter >> i'm not saying it's powell's fault. if it's 2.70, say all right, we're still monitoring we'll see. we don't know. >> what's more important is companies and earnings >> if it's a hot wage number,

we'll say, oh, no these people are making too much money. margins will get squeezed. it's a cynical viewpoint but it's what happens. >> it's what we expect from you. >> the mood in the market is it won't be good no matter what >> it's a global kind of return to stall speed or something, that's what the market is bracing for. >> i hope they can orchestrate that, the fed. i hope they can get us back to 1.9, the sweet spot on gdp growth way too sh growth. wa much growth. >> the dollar, we wanted to look at that. firming up today soft yesterday you can see it against the yen that's the big tell. the rally in the end was a risk-off move. so it seems like we're getting some mean reversion moves today

with the stronger dollar >> could be as simple as oil, too. >> that's what cramer said he was tweeting at 4:00 a.m. apple can't come out and disappoint every day >> oil was up yesterday a little bit. afrnlgt littl >> a little bit. >> he finally acknowledged he's sort of unhinged in general, cramer someone said why you are getting up at 3:00 a.m he finally said, you're right, i might be -- how do you get at 3:00 a.m.? >> i was still bleary eyed, i'm like you are kidding he's tweeteding abo intweeting e >> as i'm sitting there -- there i go again as i'm sitting there look at my -- i could be sitting on the edge of the bed. you don't know where i'm sitting. >> yes, i do >> okay. as i'm sitting there looking -- it's always cramer [ toilet flush es ] >> keep your phone away from me.

>> archie bunker i kind of turned into him. >> my options are not good either way >> sorry crude prices -- >> archie! >> she was a positive figure she wa >> she was and annoying >> oil, you saw oil, up 47 48 now which is also warped what if we go to 100, the market will go up 10,000 points? gold, seen people suddenly getting excited that dpoegold i finally on the move. close to 1300, but down a bit today. a big morning for the markets. with the fed speak and the jobs report, all of it starts right here on "squawk box. we'll kick things off at 8:00 a.m. eastern time with a first on cnbc interview with cleveland

fed president loretta mester that's followed up by the jobs report at 8:30 a.m. eastern time wall street is looking for an increase of 176,000 jobs last month. the unemployment rate is expected to tick down to 3.6%. then later in the morning we'll hear from jerome powell. he's sitting down with janet yellen and ben bernanke at the american economic associations annual meeting in atlanta. we'll have live coverage starting at 10:00 a.m. eastern time steve liesman is already there he'll bring us that interview with loretta mester and much, much more. >> that's a rorshach test right there. >> what? >> i don't know. just some people look at that and some people are like wow, there's the saviors of the world. other people are like there they are. >> i come down on the saviors of the world. >> i know. i hope it doesn't end really badly. i saw some people say that the s&p, that we got close to some

numbers where underneath there's a void and as the big unwind of the ten years of what could be -- maybe it's not hopefully not. hopefully it's the savior. the half full. hopefully they didn't -- >> see, i'm edith. >> hopefully they didn't build a foundation of balsawood to save us from the -- >> is it you ask tim geithner, he will say we don't know for sure we're not out of this yet. he thinks everything has gone in the right direction, but even he says we have not seen everything play out >> the slowdown in china's economy rattling investors the chairman of the white house economic advisers expects more companies to warn about earnings shortfalls that's another thing >> i speak regularly with people on wall street

yes, the chinese xi economy is slowing. >> later this afternoon we will hear from kevin hassett, he will join cnbc at 2:00 p.m. eastern that's the next thing. i saw some guests and had some questions prepared for them about the difference between a recession and an earnings recession. there is a difference. we're at 8% growth next year. >> that's this year. >> this year that's the consensus, now the consensus is it's 0 to 4 i'l oil, think about china and the companies involved with that >> apple alone, by the way, probably worth 7%, 8% of s&p

earnings as one company. it's like a 4% position. half the multiple of the rest of them >> i also like wall street, we'll have someone come on and say we'll see not 0% to 4%, but negative earnings growth just say it down don't you like to say negative earnings growth? >> we had an earnings recession without an economic recession in 2015/2016. >> that hurts the market multiples, right >> it did. look, everything you look at now in terms of the market, valuation, it brings you back to early 2016, if not 2011 in terms of that level of concern out there, the level of damage done. the question is are we still in one of these bull market resets or is it closer to the end of the cycle and you have to worry about something big. what does a 2% earnings command? >> if it's 2% earnings and people think it's the last

hooray, you won't put much on that if it's 2% as a refresh, as we had in 2015 and 2016, you probably put a more normal multiple on it what reset it? was it the tax package >> back in 2016? >> yeah. >> oil bounced >> it was the election, though i think post-election you saw the big rebound in business sentiment and business confidence even before the tax cut in late 2017, we saw huge rebound, i think because of the regulatory relief that we saw in '17, companies reengaged. >> post-election 2018, i think we've seen a reset of sentiment. what does this mean? can you explain this pelosi promising a different world. so no longer under 4% unemployment no longer 3% gdp no longer less -- what kind of -- she's promising a different world of weaker growth and higher regulations, higher

taxes? higher unemployment? what is her different world. she hates this world is this world so bad >> you think about all the things that weighed on business sentiment, in addition to trade. this potential for a shift in the political winds, even looking ahead to 2020, and worrying that with the shift in -- with the next presidential election, a lot of the policies that have been put in place that have benefited businesses may get undermined perhaps that's beginning already. >> i like the world. i like the world >> underneath the headline you might be able to get some answers. >> why do you -- is the world so bad in terms of what you're seeing right now? >> her first introduction is hr1 where they are making massive overhauls to how the transparency of things goes.

>> i think the markets the last six weeks have been sensing a different world. that's part of the problem >> after the 2012 election it was up 35 or something into 2013 >> jim oh sulliv'sullivan is ale what do you think, are we facing an earnings recession or a real economic recession >> i think certainly there are reasons to think earnings will be unpressure because of oil as they were back in 2015 you also had a stronger dollar in 2015. the dollar is up a bit right now. not much as much as itwas year over year in 2015. those are two key aspects for earnings, that's different than overall gdp. i think growth is poised to slow here that's the question we're grappling with when you look at the tightening of financial conditions, slowing growth, we will get some fading

of fiscal stimulus in 2019, there's a lot of good things to think growth will be slower. in the end it will be a moderation in growth, not a collapse that's what we're all dealing with as the markets come down, there's the question to what extent the decline of confidence in the markets feeds into confidence on main street and corporate america, where does all that end i think the gloom has gone too far here there's a lot of moving parts. in the end we get moderation in growth, not a collapse if you can get 2%, 2.5% gdp growth, you can squeeze out earnings growth out of that. >> what should we expect to hear or hope to hear from jerome powell today and any of the other fed officials who will be speaking throughout the course of the day yesterday one fed official who already thought we should be more cautious about things reiterating that was enough to slow the markets declines yesterday. >> i think the problem with the

fed has been the messaging up to now has not changed enough in december the fed acknowledged there was slowing, things had cooled, but yet we'll still continue to hike interest rates. i think you have to see an acknowledgment that the situation has changed and that the fed has moved clearly from an autopilot once a quarter to let's wait and see, we're not predisposed about whether or not we have to go. >> that sounds like fine tuning. they keep saying we're data dependent, the market wants a clearer signal that, yes, we have noticed there's a change in the economy, and we're on guard about that >> i don't think that's asking a lot. what you just asked for is not asking a lot they're going two more, they're on autopilot >> get rid of the dots >> why didn't they say -- >> they changed the language in december to remove the statement about expecting further

increases, to make it sort of like there's no a predisposition about continuing to move, now that you're sort of into that neutral range. that's reassuring the markets. >> i think it's more of a question of noticing the markets rather than the economy. economic markets have held up well there's been slowing in housing for sure i think the issue is more financial conditions >> that's a stretch because he's gone out of his way to say we will not be dependent. >> he does say financial conditions matter. data dependancy is also a function of dependency on financial conditions financial conditions feedback to the economy. if it's just volatility and the markets go up and down 5%, doesn't matter if it's a sustained move in markets, if credit spreads are up, that does have consequences. elections have consequences, so do markets when you look at the ism report

yesterday, you are see agony jerk reaction. >> if you have a fed that you're paying to try to do the right thing all the time, shouldn't they be using leading indicators every fed in the world uses lagging indicators they're always behind the curve. using what they know now or what they know from the last three months or the last quarter they're always on the wrong side >> i think most fed officials would disagree with that >> markets are leading indicators >> yes, they are looking at markets. they do care about financial conditions powell mentioned financial conditions a few times in his press briefing they will take that into account. if financial markets move enough that they become more restrictive, that does the job >> if we don't know why the markets -- if it's nine months, six months, if you don't know

for nine months and they're looking and raising based on either what's happening now or what's happening in the past, how are they ever going to be ahead? why do they always make mistakes, jim? >> everybody makes mistakes. you look at the last two years, a lot to of people would have quibbled with them 12 months ago. here we are with 2.38 fed funds rate people are worried about policy being too restrict tiiverestrice >> markets will always move faster and overshoot relative to what the fed can do. >> and swing back and forth. but the truth is that actually we've sort of crossed over a bit now, i think, with the ism doing what it did yesterday. i mean, it's one thing for the fed to say we'll look at financial market movements with a bit of a grain of salt we'll take the message there and marry that with what we're seeing in terms of the economy up until now the economy was showing relative resilience in

the face of what equities were doing. now we've had a sense that that is starting to change. >> so our 7:00 a.m. guest will say to ease concerns the fed should do this, tell us when they get to neutral to emphasize every time they raise rates, it's a one-time event based on data at the time three, eliminate the dots. but they won't they're stubborn >> they are reviewing communications even when we talk about the dots going away, that may be up for grabs. >> i think it might have been okay, trump, you think you can push me around there may be something to that >> well, yes, people would be saying he should to stress the fed independence not knowing what's happening with this experiment >> too bad trump probably was right back in august, but he shouldn't have said it. >> right michelle, thank you very much for coming in. great to see you, jim. coming up, investors may need some new drugs by the time

this week is over. the bristol-myers squibb offer for celgene is the first blockbuster deal of the new year and there are other opportunities in bio pharma. as we head to break, a look at the biggest premarket winners and losers in the dow. wow. >> actually some winners today who says our bank isn't tech enough? everyone, look at your phones. the design thinking, the digital engineering, security, blockchain, and we will be first to market! yes. when we do we launch? unfortunately, in 2 or 3,

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and ask how you get xfinity mobile included with your internet. plus, get $200 back when you when you buy a new smartphone. xfinity mobile. it's simple. easy. awesome. click, call or visit a store today. all right. bristol-myers squibb's $74 billion acquisition of celgene gave a boost to beaten biotech stocks yesterday t joining us now is the pharmaceutical analyst for bmo markets. yesterday's move, you have some interesting thoughts that i didn't realize so bristol-myers at 45 was a

takeover >> absolutely. >> and it still might be you think something could happen between now and when this deal closes >> absolutely. if you look at the deal between bristol and celgene. bristol has been looking at celgene for the past two years given its issues and bristol being one of the leaders in the immuno-oncology space, we believe others have been looking at bristol as well. given the pullback, there's a narrow window for buyers to come back before how old shareholdern this deal. so we believe 40 to 45 is a nice support level for bristol. >> immuno-oncology, we'll call it io. that's a crowded space bristol was too focused on that, if they have failures with their important pipeline they could because so many other people are working on the same thing. they needed to -- that was their rational for going after celgene? to diversify into other areas?

>> absolutely. if you pull up the two-year chart on bristol, you will see a lot of volatility. those are immuno-oncology trials this is too large of a company to be too dependent on this market it will be a large market. bristol is number two, but, yes, a lot of activity. >> it's a gold rush, and we don't know who will win. is there enough room for everyone >> with merck and bristol, if you look at large markets, the first few players get most of it. the latter 25% gets divided into subsequent players we have established players. the 15 million from the six celgene, the market potential for these drugs, the market is nowhere near that? they hype that number? >> you know -- >> what do you think the market potential is half that? >> i think it's closer to two-thirds of that the timeframe is important a lot of these drugs will launch within the next two years.

it will be a while until we get to that 12 to $15 billion number celgene's cell therapy approaches are promising this is the future of how we treat these blood cancer treatments the ms drug they had, that's $5 billion drug multiple sclerosis is a large market it needs to be close the other issue is that they can cut back on costs. the cost synergies provided in this deal, 2.5 billion, that's 13% overall, that's conservative even if some of those pipeline drugs don't pan out, i believe they can pull the costs. >> what similar transactions or who needs to buy something, and who should be bought >> the obvious choice is abvi. they're similar to celgene they have a patent cliff coming up and bristol removes a dance

partner for abvi so they need to do a transaction. i all thought they could go after bristol. it is possible that before the bristol vote that abvi could come to them with a merger of equals proposition i thinkcelgene -- >> are there other biotech companies that are attractive? who are they >> you could argue gilead is up there. and there's considerable debate about a lot of these things. that's the most obvious answer that comes to mind if you step back and look at this industry, there's a lot to of excess capacity so you will continue to see consolidation. but you have to keep in mind, it takes a lot to for a deal of this magnitude a lot of things have to line up. bristol was being opportunistic. >> when you say opportunistic, do you mean it was a defensive

move on bristol-myers' part? >> i think a part of it, but they were looking at it for two years. the big reason that bristol-myers fell 14% yesterday, is they think it hurts bristol's own growth prospec prospects. i don't think that's the case. i think celgene finally got to a point where they could reach an mutely agreeab mutely mutually agreement price. >> there's a large drug generating a lot of cash flow, they will use that cash to de-lever some of the debt for this deal. and bristol made clear they have conservative expectations for relamid. they're making this deal for those pipeline assets. >> thank you

>> thank you. the business community is mourning the loss of a major pioneer in the airline industry. herb kelleher, former ceo o southwest airlines passed away on thursday. he changed the airline industry creating a low-fare carrier that made travel more accessible to the masses today southwest carries more passengers within the united states than any other airline. reaction is pouring in this morning from some of the biggest names in business. former dallas federal reserve president richard fisher saying herb was a legendary business leader, civic titan and most importantly an ardent defender of the federal reserve system and its independence former ge ceo jack welch calling kelleher smart, innovative, funny, and a bit out of his brilliant mind he was an american business

hero he elevated ehis people to heights they never imagined they could reach. he was 87. >> makes me feel better. >> when he would come on, this guy -- he does what he wanted to do he drank scotch on our air >> i think it was wild turkey. >> wild turkey and he would smoke >> he would smoke in studio. >> i know. >> he wouldn't listen to anybody. >> to anybody telling him not to i was down in dallas in may of 2008, i was sitting down for an interview with him just before the interview started we got word that american airlines was instituting its first baggage fee. his reaction was priceless no no way he didn't think there was a way you could do that. because he way was to take care of your customers, make them feel good about things before southwest came along -- >> the way they operate because of one guy >> they were competing with the bus, that was the classic line

fly southwest or take the bus. >> so optimistic all the time. a piece of work. >> he'll be missed >> he will be missed he enjoyed life. life well lived. we can all sh happbe happy to d well as herb kelleher. comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. from capital one.nd i switched to the spark cash card i earn unlimited 2% cash back on everything i buy.

and last year, i earned $36,000 in cash back. which i used to offer health insurance to my employees. what's in your wallet?

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>> welcome back to "squawk box," live from the nasdaq market site in times square. the u.s. and china will hold trade talks in beijing on january 7th and 8th, and china's commerce ministry making the announcement today saying they hope to have positive and constructive discussions u.s. equity futures at this hour broke through 300 just barely on the dow. 660 down yesterday, giving back 304 so far this morning. and even more than 50% of the nasda nasdaq losses. the s&p indicated up by 35 overnight in asia, the nikkei reopening after being closed on wednesday and thursday, and that index falling more than 2% european equities, after the rout yesterday, indicating a bit

of a rebound as well everything is based on oil for some reason. right now the ten-year is back above 2.6 after being in the mid 2.5s yesterday 2.604 this morning nissan's carlos ghosn is expected to make his first public appearance in seven weeks. ghosn will appear in a japanese court tuesday after he requested an open hearing about the reason for his detention. ghosn has been held since november 19th. he was arrested on allegations of financial misconduct. as you know, the reporting since then has been pretty murky about what the real story is and what's happening leer. earlier this week the court approved an extension to ghosn's detention until january 11th. about two hours left until the big economic number of the week, the labor department's december report. joining us is tom gimbel thank you for being here good to be with you. >> you do your own survey of

about 4,000 executives and ask them what hiring perspectives they have. what did you find this time around >> 74% continued to say they'll hire more staff in 2019. 60% said they will increase wages in 2019, which are bullish. those are bullish signs. we've got to realize that we're going to make this a self-fulfilling prophecy that there is a recession companies are doing good companies tend to be bullish oil seem to be the driver right now. all ovther things, besides the bumpy december, the economy is in a good place. >> i wanted to drill down with you, you talked to 4,000 executives, hr executives, finance executives when was the survey taking place? things have been changing rapidly. >> it was in the fourth quarter. the data -- the survey went out and the responses came back before the crazy december. i won't deny that. but one month with no huge

reason why the stock market gets a little volatile doesn't mean the economy will go into a downward spin. i don't understand what the leading indicator is that people are saying chicken little, the sky is falling >> the jobs numbers we'll be getting later today are backward looking what you're talking about is forward looking >> exactly >> also these confidence numbers. when we got the ism yesterday, it showed confidence plunged, down more than 5 points. i try and get the difference between which level of executives are making these decisions. people that you're talking to, are they in charge of things or could a ceo come in later and say forget those plans, we'll pull in the reins a bit? >> that can always happen. there is the ceos whim off-shoring versus bringing things back in the states or we'll outsource this, insource that you're talking about carlos

ghosn and what's going on there. that totally changes how that company will be run. you are always going to have a ceo's desire of how they want things to go is it a more conservative ceo? is it a more risk-taking ceo those issues will happen no matter what the cfo or what the hr leader says however what we have now that we never had in 2008, that we didn't have in 2001 is a global economy. and, yes, it is relintd ant on a and trade talks, but there are things happening in all parts of the world and american companies are doing well >> where do companies plan to increase spending? >> first and foremost they're looking to hire more sales people shlg whi people, which is a good sign, they want more street on the feet to get new dollars in the door for their companies second is i.t. we will see that continue to grow people think that's just a tech company. it's not big manufacturing companies, service companies, they all need

i.t. help, whether it's developers, infrastructure, software, across the board things are going in those ways companies want to continue to invest in infrastructure >> thank you for joining us. good to see you. >> good to be with you. >> tom gimbel again. coming up, the good, the bad, the downright ugly. we're talking about hedge fund returns there are some nasty numbers out there. we have a round-up next on "squawk box.

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♪ welcome back let's take a look at the u.s. equity futures on this last trading day of the week. we're just a couple hours away, less than that right now, an hour and 45 minutes away from the jobs report. ahead of that the futures are up significantly. dow futures up by 310 points yesterday was a 660-point drop for the dow. nasdaq was down by 3% yesterday. this morning it's indicated up by 118 points. the s&p, which was also down

yesterday indicated up by 35 the biggest names in hedge funds turning in their report cards for 2018 the numbers are not pretty in general. leslie picker has some of those details. >> some of those hedge fund managers are giving us results for some it was a comeback, for others it was a year of dashed hopes. and odey is in the comeback camp as they closed the year of one of the worst performers in 2017, and a top performer in 2018 with returns of 52% he benefited from brexit and a long in sky which surged in a bidding war that lasted nearly two years. somewhere in between comeback and defeat is bill ackman. his firm, pershing square, ended the year effectively flat thanks to gains in chipotle and adp after three years of losses it wasn't quite the numbers he

liked but it surpassed the s&p 500. >> i'm sure akmckman -- i thinki could match those. >> you could do down 0.7% and -- >> did you see the last four years? >> sure. >> the flesh hold is threshold s year dan loeb closed the year down 11%. a person knowledgeable with the matter said the bulk of those losses came in december thanks to dow dupont and campbell's a notable underperformer is david einhorn's green light capital. he lost more than 34% in the year thanks to longs in air cap, lighthouse and green brick i know, joe, you could beat that i feel good -- i feel confident in saying that >> what's the index fund in the

past four years? >> four years? i don't know >> better than those last two. >> yeah. >> people say you're on tv i did do that for ten years. >> there you go. >> i did >> you're right. >> broker with merrill >> i thought you meant -- >> no, no, no. i don't -- i'm saying it's not like i haven't tried i did a lot better than that >> the trick is getting pensions to give you money to do it >> was in 1982, though >> leslie, thank you. coming up, apple and the rest of the markets taking it on the chin yesterday after a warning hurd around teard aroun. does tim cook suddenly have a credibility problem with investors? our next guest thinks so and he'll explain why after the break. at&t provides edge-to-edge intelligence, covering virtually every part of your manufacturing business. & so this won't happen. because you've made sure this sensor

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wednesday has focused on tim cook's leadership. for more let's welcome jeffrey sonnenfeld jeff, good morning you know, in a sense there was a thought we thought wall street put to rest, the tim cook leadership how are you now assessing his performance in this latest phase? >> this is a pretty disappointing stage. you know, we have to admit lots of people lost faith back in, what 2011 i think it was summer of 2011 when sadly steve jobs passed away and tim cook took over. i think there's a lot of disappointment set in initially. we're at almost three times that now. obviously the stock has performed very well. but the reassurance they got back in november would not have predicted any of the terrible crushing news we had yesterday

and seems that tim cook should have known and i believe he's an honest guy perhaps he's just drinking the same kool-aid as the rest of us that he didn't properly foreshadow bad news on so many levels and that was -- that's a big hit to credibility we have market saturation. we have products backing up in channels the new products aren't selling so well. they're blurring the information a little bit by not giving us unit sales anymore there's lots on the lack of progress on india and elsewhere. there have been recalls of products in germany and china because of the qualcomm lawsuits none of this so far has to do with the china economy which we admit that there are trade issues and things there. but a lot of this was visible. and their supplier saw it, why didn't they? >> arguably, what we're really dealing with here, certainly a sudden slowdown in a big market. but just the maturity of the most profitable product of all

time, the iphone and i guess the company's trying to come to terms with that. so do you actually fault cook for broader ste eer strategic ds to try to get higher prices, to buy back a lot of stock. are the strategic elements of his leadership that you think may have fallen short? >> the stock buyback does seem ill timed. with the tax law change, most of the overseas earnings that we were complaining about are still outside technicallyoutside the country. so i don't know. this buyback, i'm not sure if the money came from that pool or not. i don't think so but nonetheless in terms of what cash soaked up, this is a company where over 60% of its revenues are coming from the iphone the last time we had a big crash like this on apple stock, it was around 2002 i believe. and there was no iphone then

but what steve jobs had in his pocket where the iphone hadn't yet come out ipods, apple itunes. there were so many things yet to come out that the ipad, the things that were giant contributions to apple's portfolio. right now we're looking at a huge reliance on the phone and a belief that everybody wants ios. but in china, we now know we don't need ios it doesn't have the same appeal, the operating system for apple, because wechat does everything it makes your doctors and dentist appointments it pays your bills it's more than just simple social mobility and networking some people, not just my daughters, everybody i know sort of complains about not having the easy usb ports or not having

the headphone jacks. it seems we're being charged very high prices and the competition huawei not only beats apple in china, huawei is number two worldwide after samsung which is number one. that's the functionality that's quite good on huawei hate to admit it >> you talk to a lot of ceos and huawei in particular, i've heard complaints about security concerns do you have those concerns with huawei >> huawei is a rogue player. we don't know how much of the government is controlling that some people still think they're part of the liberation army. huawei is a big problem. nor tell claims huawei stole their intellectual property. huawei has been a violator in many ways. and that's part of the detention

of the huawei cfo in canada right now. we learned overnight, there are 13canadian executives being held hostage overseas. and now half are afraid to go to china. >> we saw the travel ban yesterday. didn't help the markets for sure jeff sonnenfeld, thank you very much when we come back, a fed insider speaks cleveland fed. loretta mester will be talking to us at 8:00 eastern time then the countdown to the jobs mo "ua bpo resqwkox" after this (sounds of race cars) the same iot technology on the ibm cloud that helps race teams improve performance and safety. bye. girls, don't wave at strangers. can now be built into everything we drive. when you apply expertise across an industry,

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live from the beating heart of business, new york, this is "squawk box. >> good morning, everybody welcome back to "squawk box" right here on cnbc we are live from the nasdaq market site in times square. i'm becky quick along with joe kernen and mike santoli. let's look at the u.s. equity futures at this hour you are going to see things are picking back up after declines yesterday. we do have a lot of news this morning too. you'll get the jobs report in an hour and a half, then you'll be hearing from jay powell later today. all of those things likely to have a big impact on the markets. right now the dow is indicated up 300 points. and the nasdaq up by 113. >> here is what is making headlines at this hour china announcing it will cut ban banks' reserve requirements. slashed four times in 2018 to free up more for analysts to

expect three or four more cuts next year. house members will meet with the president today. the new congress passed measures to end a partial government shutdown funding eight closed departments through september 30th and homeland security through february 13th. but without money for the wall, considered dead on arrival general motors is teaming up with door dash the program which will start in san francisco in march will include meals from i guess our producer's new year resolution was not to swear off that stupid song, was it you didn't notice it >> i did it's your favorite song. >> every friday. huh? >> 52 times. >> i'm going to hear it onthe radio too. anyway a few stocks -- and they play it on the radio doesn't have to be friday. they'll play it any time

anyway, few stocks on the move this morning rbc downgrading utx. the firm says shares are likely stuck in limbo the analyst says there could also be a transaction involving carrier before then but the potential upside is not enough to keep the firm more positive we'll also keep an eye on apple this morning a dire revenue miss yesterday -- warning of a miss blaming a slowing chinese economy for the shortfall is intensifying fears or maybe kevin hassett expects more companies to warn of shortfalls. >> i speak regularly with people at wall street this is something people have seen coming. the chinese economy is slowing and one of the reasons why markets are responding the way

they are is people are downgrading the earnings forecast for folks that have a lot of business in china >> and we're going to hear from kevin hassett this afternoon when he joins cnbc live at 2:00 p.m. eastern helping us get ready for the final jobs report of 2018 or the first jobs report of 2019. >> it's the final one reporting numbers from last year but first one we do during 2019. >> okay. it's kind of in that -- it's nuanced. gary pollock head of client fixed income desk. i've already actually -- your ears are burning i was talking about your comments and i was talking about some of ben mandle's comments as well. when i was talking about you and i have a problem with your last name could i call you person-dle? just to make it less gender -- have you thought about that?

have you had any pressure from your mployer you feel comfortable with that. >> actually it's mandle. >> never mind then >> taking the emphasis off the man. >> smart ben, with your comments it's a lose/lose for markets. it set me off this morning it did because stocks slide, stock slide as growth fears spread sound like shatner but let's say we have a good number today a really strong jobs number. that's not going to help that's going to have the fed make sure we do slide. they need to back off. that's what gary is saying as well right? >> yeah. >> did i sum this up >> i think there's something to that it's a very narrow path for today's report >> what is it? it's within 1,000 or 2,000 and the wage has to be perfect too >> something that has fears of a

growth slowdown which you're seeing we're going from a period of exceptional growth in the u.s. economy, so 4% earlier in the year or early in last year it was an unsustainable rate going down a 3% and probably down to trend this year which we estimate is 1.5% to 2% so i think what's spooking markets is that you have a bit of a signal extraction problem when you have any sharp deceleration in growth so is this just going back to trend something more benign in nature for markets or is it the end of the cycle? we're not going to know that if all we're seeing is a sharp deceleration it's very difficult for risk assets to do well -- >> you're underweight equities and overweight cash. right? and bond >> right now >> for how long? how long could this be >> i think it's important to be cautious at the moment as we

navigate that late cycle deceleration we're in right now. it's also important not to get too negative we're looking at six months time or nine months time when the deceleration is in the rearview mirror when peak narratives are in the past and with any luck, you get a bit of relief from the trade war >> you're a successful guy you've got a good career and everything, but you were not considered for fed chair, were you? how come you could figure it out? maybe what you should say after every increase is it made sense now, but we don't know if it's going to make sense in the future why is that so hard to say that? and you came up with it. maybe you -- you're in the running now in my book >> as the fed gets closer to neutral, conducting monetary

policy becomes more challenging. not only for the decision itself, but also in term of market guidance. >> how do you know we're not at neutral now? >> i think we should be at neutral now. what i'd like to see jay powell do is tell us that we're at neutral. >> he doesn't believe we're at neutral. >> some reason to think that -- >> we're in the range of neutral. >> well, in october he said we're like a million miles from nu central >> since then he said we're at the bottom edge of neutral >> we're close to the bottom edge >> he's speaking today in atlanta. and i'm hoping to hear those words that we're getting close to neutral that'll take a lot of fear out of the market place. >> can i also say, if we do get a strong number or slightly better than expected number and wages are fine as expected or maybe even better. isn't there the opening right now given what financial markets have done for powell to also say, yes, we see the numbers but we're going to be data dependent from here on out financial conditions have done some of our work for us.

in other words, a strong number isn't necessarily a tightening pattern. >> that is correct because the numbers back in december, joe, you said that it's last month's employment number markets are always looking forward. just because it's a strong number today doesn't necessarily mean that -- >> that's what they always use though that's why they always overshoot. rememb and shouldn't in that position, shouldn't they have some feel for what the future is like instead of just reacting to the past >> the fed is a big institution, joe. they have their own rules on how they go forward. >> but they don't have rules john taylor wanted them to have rules. they have no rules >> there are over 70 people at an fomc meeting. 17 people are members. 12 are voting members. and the fed chair is there to come up with a consensus

>> you know a lot. maybe you were in the running. okay >> could i ask you something >> no. ski y i ask you. believe me, i have no answers. i know that. >> but should the fed care about equity volatility per se >> if it's a leading indicator -- if they put that -- if there's a reason in the lei that the stock market is a big component of the lei, that's not something they should use in their tool kit thushd just look at lagging indicators >> they should bemore concerne that the yield curve is telling them something about the economy. >> all right there. that didn't help either. >> they're worried about that big growth slowdown that will eventually end the cycle in which to be frank they don't have a flawless history of preventing in the past and we're looking at the yield curve now which has inverted and is actually pricing in cuts year out. so i think, you know, one thing to consider as we think about

that fed pricing is that the fed itself has been very clear about slowing down this year as it approaches neutral but the market has gone way further than that and is pricing cuts a year out. so i think there's a high bar for the fed to be more dovish. >> they have a dual mandate. maybe they need another one. i wish they only had one >> we used to say they should only have one. >> but now they're violating both you want full employment so you leave rates to stay low and you want to make sure that there's no inflation, but there isn't really any inflation. >> but there is inflation. inflation has trended slightly higher >> like in japan where rates are zero in germany where rates are contained. how do you know that inflation basically is going to be low for

a long time because of the internet >> jay powell at jackson hole acknowledged that possibility that you're going to see this kind of different effect >> scientific gains are coming quicker and quicker and quicker. it all adds the productivity and holding prices down. you got china exporting. for awhile i don't know. >> and that's why you have that flat yield curve >> is that why >> that's why. always responds to fundamentals of the economy and inflation inflation is relatively stable, relatively low the short end to fed monetary policy which is a little hot right now and it's causing short rates to rise. so these come down, these go up. >> so if we go to 250 today and the market sells off -- >> don't blame me. >> fed share gary pollock would have -- anyway

thank you. when we come back -- >> a different version this isn't the cure. what is this ♪ it's friday i'm in love >> this is like a hodown >> when we come back, we'll continue to torment joe. we are counting down to the jobs report also the latest work force data is out we've got the numbers. we'll find out who's hiring and where. stay tuned you're watching "squawk box. hey, darryl! hey, thomas. if you were choosing a network, would you want the one the experts at rootmetrics say is number one in the nation? sure, they probably know what they're talking about. or the one that j.d. power says is highest in network quality by people who use it every day? this is a tough one. well, not really, because verizon won both.

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. the december jobs report coming up at 8:30 eastern time that's just an hour and 11 minutes and 15 seconds away. steve liesman joins us right now with a preview of what to expect steve, good morning. >> morning, becky. i think it's a critical day for both the markets and the fed does it end up closer together at the end of this day or further apart? you have jay powell speaking here in atlanta where i am at the annual meeting a strong jobs number could push them further apart in where they think the monetary policy ought to go. there's a weaker number or modest number. let's see what they're looking for. that's modest in terms of where things have been it's up from november which was maybe affected by some of the weather. but that unemployment rate ticking down from 3.7% to 3.6% is going to push the fed the other way, i think hourly averages ending 2018 with the strongest wage gains we've

seen since 2018. and there's that adp payrolls which we look at to see what are the indicators for the jobs numbers. there's been a few strong ones, maybe surprising ones. first of all, take a look. adp is one of the strong indicators out there but you also have the ism. everybody said that was a weak number the headline number was not as weak as people thought but it fell down to 54 which still indicates 3% growth. more so the employment index in there only fell a little bill du claims to be up a little bit but not at the bigger level to indicate real weakness over at action economics, mike ingram writes despite high anxiety levels in financial markets, the outlook for jobs growth remains strong. and producing consumer confidence has moderated somewhat recently.

those are his comments there now, look for powell today i think all he can do is emphasize that the fed is data dependent not much more he can do other than that. that's what he said back in december the market didn't hear it. i think one of the new realities, guys, is the market itself is perhaps creating its own economic reality with the downdraft in stocks. perhaps could give some employers pause in hiring and pause in capital spending. going to ask that question of loretta mester coming up at 8:00 then we have kevin hassett later this afternoon at 2:00 here at the biggest wonk fest of the year >> steve, not just saying data dependent. i think what the market is probably listening for is for powell to acknowledge that, yes, we see some signs of weakness out there and are paying attention. maybe to acknowledge the data coming in has been weaker. >> yeah. i expect him to do that. i expect him to say those

things and i guess the question is is the market going to hear it. i don't think the fed is going to be one to hike in the face of obvious weakness or even going to ignore the market i especially think this fed in particular is one that is attuned to what the market is saying and they wanted to get done that fourth rate hike now i think they're going to go meeting to meeting and data point to data point overall where, look. the fed has been expecting a slowdown for a long time they seem to be on the slowdown idea for 2019 before the market was on the slowdown. they had pencilled in 2.5% growth from 3% and they're now down by the way to 2.3%. they lowered it at the last meeting. >> when you're able to single handedly orchestrate the slowdown, you know it's coming let's say we match the adp number let's say we did let's say we did what will the markets do and why shouldn't i blame you?

>> me? >> basically >> me personally >> as a fed spokesperson but first -- >> i'm not a fed spokesperson. >> what would the markets do -- >> don't confuse my explaining the fed with my agreeing with them >> that just -- i'm just pointing out the absolute -- >> that's a question for you look in the mirror and ask yourself i don't know which way the markets are going to go. >> i worry they would close down which would point to sort of the irony or the warped sort of environment that we're in right now. i really do think that such great numbers which we all want with higher wages, i think because we know what that would get the fed to do or what would probably increase the probability of them doing will cause the markets to sell off. it's not the way it should be. >> yjoe, let's be clear. >> wait for the inflation. the whites of their eyes

>> no, no. there were a lot of people who were screaming the fed is too loose. that they're in the midst of creating the same bubble that they created in '08. >> that was two years ago. >> it was two years ago. it was last year a lot of these people, joe, have switched sides i don't know if it's for political reasons or whatever. but they're now on the other side. >> what do you do when the facts change, sir? >> let me just explain what the fed tries to do is reach a normalization point and the argument was if you're going to do over a hundred thousand more than should be created in job growth, if you're reaching 50-year lows in unemployment, if you're at target on inflation, then the fed ought to be somewhere near a normal or neutral interest rate. should no longer be stimulating the economy. >> not counting the

participation rate, it's at 40-year lows or was. you've got innovation and technological -- >> right so now you're a dove, joe. i get it it's okay. you're a dove. it's okay to flip sides. it's all right. >> what do you do when the facts change they built up this huge bubble so if they go up a hundred basis points, our debt service we can't handle it. they realize that when they might go up that much? >> the facts changed >> they inflated the bubble. you wonder why the bubble might pop when you raise rates >> the change is that the market has weakened and you've had the global economic weakness if you get the confirmation of the u.s. economic weakness, the fed is going to change its policy and that's why a weaker number today would bring the markets and the fed closer together. whereas a stronger number, joe, i think raises the exact problem that you're bringing up which is the fed's going to have a quandary there of how to handle

a strong jobs number and a higher wage number >> they'll take care of that >> isn't the way out of that is stronger number today and still say data dependent from here on out. and some kind of a nod to what the bond market is looking like. >> i think so. one of the things the fed could do is say hey, there's a lot of uncertainty out there. we're going to step back and watch the smoke clear here before we have an idea of what's happening in the economy i think the fed has time and patience here. and it has a serious communications problem especially if i'm really their spokesman. then they have a serious communication problem. but more importantly it's the idea that they put out these forecasts and the forecasts say where they think they ought to go and people see that as a promise or some kind of definitive outlook for policy whereas it's something that is going to actually change. i showed you guys the screen a couple weeks ago that when the fed, when the economic indicators change, the fed changes. one year they did one hike they said they were going to do

four another year they said they were going to do three, they ended up doing four that's a result of the changes in the economic data it's the dots and i think the dots are confusing to people and by the way, i think powell has made a mistake here in that he's made a prerogative of working to regular people and the public and i think he's sort of left the idea of how to talk to markets on the other side. i don't really have a problem with how powell has handled policy my sprob it's a data dependent policy that's out there. >> we're kind of operating on that premise right now we'll see what it looks like steve, see you in a half hour. thanks a lot sticking with jobs, the

latest from linkedin on the workforce is out we're joined with those numbers. how does it look >> the boil we had seen under hiring is definitely gone. things are slowly cooking but very slowly. 4.1% hiring increase but 0.7% increase month over month. it's barely chugging long. employers are still hiring but not like they were and the industries that were hiring previously. manufacturing, construction. they are nowhere to be found so google, facebook, consulting. and corporate services and then agriculture >> agriculture >> agriculture a lot of biochemical and seed companies. i'm not sure exactly why that is it's one of those ones you wouldn't expect to be hit by the tariffs. but they're still hiring.

>> and i'm sorry -- oh that's a good point. >> half joking there >> i'm sorry, i cut you off. you were saying the government shutdown >> public safety the department of veterans affairs bb u.s. army corps of engineers. you know that's not going to happen in january. the question will be for the numbers, how does this shutdown have an impact >> has the worker shortage been solved i mean, basically you're seeing companies respond to softer demand presumably. >> i think the question i'd have is the same one. is there a -- as employers watch these numbers and they wonder what's happening in the global economy, maybe we'll pause the hiring and if you're an employee, do you have that jump in do i want to stay hunkered down in my job or want to necessarily pack up and take a risk? it feels like right now might not be the right time to take a risk our numbers take into account

not just job hiring but job changes. >> we're back to a take this job and shove it environment we miss the window that quickly? >> seemed like everyone was ghosting people were just leaving jobs whenever they felt like it i wonder whether we're going to continue with that those were the glory days and things we'll talk about. remember when. but that window shuts quickly. >> still more job openings, i mean, on paper than available workers though >> exactly you still have employers who are holding out for very technical jobs, for people who can fill positions specifically and they want to get exactly the right people in. i don't know if that changes if hiring starts changing more. >> is it that or is the bigger part of the problem they don't want to raise wages for certain areas? the other problem you hear is when they can't find people who can pass a drug test >> yeah. we do still see companies.

that's a big one people can't pass a drug test. there's still a huge percentage of people who aren't working and looking for jobs and if you are not going to raise wages, it means going to five people who are in lower pay areas of the country and you are seeing jobs moving out of the coastal cities into places like charlotte, denver. so people are moving to these lower cost cities. >> all right, dan. thanks very much dan roth, linkedin editor in chief. white house council of economic chair kevin hassett sending a warning to investors earnings and forecasts for 2019 are being cut. and part of it, business in china. and can you say oil. a look at some major companies that have some exposure there. as we head to break --

>> oh, this is a good one. >> oh, my god. as we head to break, take a look at -- i can't even believe you could find this. who recorded this? take a look at u.s. equity futures. ♪ tuesday's gatre and wednesday too ♪ ♪ thursday i don't care about you ♪ [beep] you should be mad your neighbor always wants to hang out. and you should be mad your smart fridge is unnecessarily complicated. but you're not mad, because you have e*trade which isn't complicated. their tools make trading quicker and simpler. so you can take on the markets with confidence. don't get mad. get e*trade and start trading today.

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welcome back to "squawk box. here's what we are watching this morning. the countdown is on. the december jobs report set to be released at 8:30 a.m. this morning. futures are sharply higher ahead of those numbers wall street's looking for an increase of 176,000 jobs in the last month the unemployment rate seen ticking down to 3.6% we'll bring you all of the data and instant market reaction. and china cutting bank reserve requirements as fears of an economic slowdown grow there we'll talk about that in a bit and the fed in focus awaiting comments from jerome powell this morning to see if he softens his tone on rate hikes we'll have an interview before that with cleveland fed president loretta mester when we come back, earnings, earnings, earnings analysts are cutting because of what's happening in china and beyond we'll tell you what you need to

watch as we head to the business egs weeks of the quarter in the meantime, check out european markets right now >> this is a choir version >> european markets are up 1.4% for the ftse same story for the cac the dax up 1.8%. ♪ i'm in love >> this is all about joe today >> that's how i like it. alerts -- wouldn't you like one from the market when it might be time to buy or sell? with fidelity's real-time analytics, you'll get clear, actionable alerts about potential investment opportunities in real time. fidelity. open an account today.

earnings season. really it is. it's upon us once again. analysts are cutting estimates for 2019 the chairman of the white house council of economic advisers expects more companies to follow apple's lead >> i speak regularly with people at wall street this is something people have seen coming for a good long while. yes, the chinese economy is slowing and one of the reasons why markets are responding the way they are is that people are downgrading the earnings forecast for folk who is have a lot of business in china >> and joining us now to talk more about profit warnings is ceo of the earnings scout. what i don't understand, nick, is -- i mean, we're in an

electronic age the consensus is still plus 8%, but nobody really believes it. why doesn't it come down immediately when it becomes clear it's probably wrong? what do you think the real number should be right now if you had to guess >> well, the way the earnings work, the analysts will wait to cut their estimates after companies report them. the majority of companies are going to report in late january and early february their fourth quarter results the market's going to act way ahead of that. 8% expected growth for 2019, the market's pricing in flat growth right now. >> how much of it is china how much of it is oil? >> great question. china is certainly a slowdown, but also europe's slowing as well so when fedex reported last month, it blamed europe. so there's less charitable central banks around the world the ecb ended its qe last year

and we're seeing growth slowing in china so that's a contributing factor. and also the fed is tightening the screws a little too much here in the u.s. >> you -- we talked about the chi trying to draw a line between a earnings recession >> no. it's going to be set on what the policy makers do some is inflected on the monetary side and fiscal side with the tariffs if we get some sort of resolution with the tariffs, where there's a truce on the trade conflict and if the fed stops tightening the screws, we could see 6% to 8% growth next year that occurs, stock prices will have to reset higher but if the fed wants to keep tightening and we don't get a resolution on conflict that it starts to impact capital spending plans next year, we'll see revenue growth deliclinedece it's dependent on the policy

makers >> so, like, scouts go out with -- leave most of the troops behind and you go out and find out what's going to happen where nobody else knows. is that why you're the earnings scout? >> well, we're measuring the earnings and ranking them. >> before anybody else >> yeah. >> okay good so then maybe you can -- you know, if everybody else stays at 8%, waiting for companies, maybe you can help us then if we did go to zero, not only would the multiple -- even if the multiple didn't change, that's probably down 8% or whatever or would indicate lower equity prices you don't command as high a multiple if you have no growth, do you so the multiple would come down and tit would be like a double whammy >> so on a rate of change basis, the s&p 500 profit expectations have been weakening for about 12

months now when we find on a basis when the expectations weaken, the mul multiple contracts and it's cheap for a reason because the expects earnings are getting weaker what we need to see is some sort of resolution on trade a fed pause to see some stabilization in those expectations and they're turning south for sure at an increasing rate. if we see stabilization on the expected earnings, you see the multiple on the market start to expand again >> you're kind of highlighting one of the issues we've been sort of grousing about all day so if -- you know, if the fed sees that earnings aren't falling, then you continue to raise. it's just weird. it's like if things continue to go well, they don't pause. it's only if things don't go well, then they pause. so it's almost self-defeating.

how do you satisfy that? >> if you're looking at the current quarter, so the current quarter fourth quarter earnings, if a fed is just looking at that, the expected growth is going to be more like 15% but that's not relevant for the market you need to look forward to 2019 hopefully they're looking at that >> you think the fed should pause? that's what you're saying? you think they're at neutral already or not >> i think they should have paused in december i think the screw was tightened enough and they did it one more turn if they're thinking two or three more turns on the economy, they could strip the screws and break the economy. if i was the fed chairperson and wanted to break the economy, i'd keep hiking. >> what happens if they stop raises rates right now what would you say that would mean in terms of the earnings and what we'd hear from companies? >> one reason why you stop hiking right now is not only is the growth expectations weakening, but inflation is not a problem. in fact, we might soon see deflation become an issue with growth slowing around the world. so you do that pause and it can

maybe give some relief to the expected profitability that those estimates don't need to be cut further than what the market's already pricing in. >> getting back to oil quickly, nick so people use it as just a risk on/risk off. you know, they don't even need to think about it. but with what's happened over the past five years where it's now such a big part of our economy and it's been such a boom domestically, is it more -- is that really what it all relates to when oil's down, that segment of the s&p is going to have weak earnings and it just factors right into what you're talking about, right is that what we're seeing at 45 or 47? >> we view oil like porridge has to be just right that spills over to the rest of the economy. what we want to see is just modestly increasing oil prices where it doesn't crimp margins

and doesn't kill the profits of the energy companies >> nick, last time we saw this earnings downturn when the economy was not technically in recession, 2016 you did see mostly industrials suffer. does it feel like a rerun of that or are there distinctions between what we might be facing this year? >> in 2015 when the fed did its first rate hike in december, it raised rates and we saw weakening earnings expectations potentially had a policy error but was bailed out by the people's bank of china and the european central bank. this reminds me more of the summer of 2011 when we had weakening data and the european central bank in july of 2011 it's four months later into the weakening data, facing the european sovereign debt crisis four months later, the ecb had to cut rates we might be going down that same path this year

>> i can't imagine financials are a bright spot. with the slowing economy and a flat yield curve and credit issues and everything else all right. mr. earnings scout, thank you. appreciate it. >> thank you when we come back, the dow pointing to a higher open. we'll talk much more after this. and then it is all about the fed and the economy. at 8:00 a.m. eastern time, a first on cnbc interview with loretta mester that will be followed up by today's jobs report at 8:30 a.m. eastern ime. wall street looking for an increase of 176,000 jobs last month. also expectingthe unemployment rate to tick down to 3.6%. as we head to a break, a quick check on this morning's premarket movers in the dow. intel leading the way by 2.6%. ♪ it's friday i'm in love sfx: [phone ringing]

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xfinity mobile is a designed to save you money. even when you've got serious binging to do. wherever your phone takes you, your wireless bill is about to cost a whole lot less. use less data with a network that automatically connects you to the most wifi hotspots in millions of places and the best 4g lte everywhere else. saving you hundreds of dollars a year. and ask how you get xfinity mobile included with your internet. plus, get $200 back when you when you buy a new smartphone. xfinity mobile. it's simple. easy. awesome. click, call or visit a store today. time now for a check on this morning's movers and more from the markets. dom chu joins us with that >> good morning and happy friday as we look at early morning movers, we'll stick with this theme about what's happening with china and the risk aversion there. you will see some of these particular moves in caterpillar, boeing, and wynn resorts

the names more leveraged to china business up 1.5% to 3% at this point as we take a look beyond that to just the broader themes of chinese internet equity stocks, these ones are the ones that have been pretty hard hit in the recent downturn. but alibaba, baidu, and tencent music among the names on the chinese internet side showing life this morning. tencent's up by 4.5% at this point. so becky, as we take a look at these type of equities that have been sold off really hard in this recent downturn, these could be ones to watch to see if they sustain any kind of a balance. >> thank you very much dom chu. sticking with china and the emerging markets, joining us now to talk about all of that is the manager of neuberger bermaner

merging markets fund what do you say? where's the better place to put your money right now china or the united states >> i think it's a relative call on a bigger picture. the chinese market has sold off hard as you mentioned. that started earlier in 2018 it just seems like it was a big, long gestation period be fr the reality actually set in stateside. there are opportunities in china so the market is a lot cheaper but also state owned enterprises, for instance, china trades at ten odd times. but now accounting for 40% of that market. so if i have to take a longer term view, i think there are still opportunities. but we are bottom up investors >> let me ask. what we heard from apple this week, did it surprise you at all? >> not in the least bit. we saw on the industrial side a

marked slowdown in june/july of last year. orders were down about 40% for people supplying into china out of asia. the next step of that, you saw the consumption slowdown take place. that's just manifesting itself so you got "a," a slower consumer in china. that's probably going to turn around first if you look at where the cycle turns in china >> why based on something china does from the government to try to inspire? >> so firstly, that's the biggest piece of the economy right now versus fixed asset investment which was their prerogative early on there's limited amount of massive stimulus that china can do especially when you're right now at 250% debt to gdp. they get that. if you look at the savings rate is higher. it's easier for them to stimulate consumption and be more economically friendly rather than rolling out more debt through a big stimulus plan >> you mentioned you're bottoms up investors

but emerging markets kind of just a fed story or broadly speaking a central bank monetary story? >> i hate to say it, but the reality is it's treated as a homogenous class but i think that's where the opportunity is especially if you think that the fed is more likely to be on pause. and when you look at e.m. in broader context, you had the bond market selloff, the equity market again the fx market got out to where you base out how it outperformed so i think it's -- the opportunity's attractive fixed income on the equity side looks attractive which is important to us. that's where i think e.m. outperforms. >> it trades as a homogenous class, but where do you think are the best opportunities >> because we are looking for

quality assets, good companies, good managements where you find the plethora of opportunities on a bottom up basis still remains in there it's got a good fundamental story to it. i think you look at indonesia, philippines, smaller markets also look attractive especially in markets where real rates are high so spite what the fed does, you actually have policy support in these markets. china is a big market. there's a lot of opportunities once you go below the surface. we're looking much more or yebted in the end. if we move closer to this time zone, i think brazil if they can get their story right, you've had a growth pause, if you will. new administration there there could be interesting opportunities. and mexico people are pretty negative on but mexico has good companies, good earnings i think that's where the opportunities could be in e.m. >> with mexico, are you assuming

that the new nafta deal is going to pass and be signed by all three countries? >> the politics of it is difficult to call but that doesn't derail mexico that significantly. i think there is a sentiment factor you see that related in the pais sew. but structurally it will help. i think it's in our own interest, too, striking the deal >> conrad, thank you so much for coming in today. conrad saldana coming up, the december jobs report plus what's the fed plan for 2019 a first on cnbc interview with cleveland fed president loretta mester that's right after the break her comments and reaction from the markets is next. taking a look at the futures at this hour, they had been bouncing less so now. dow up 271 at this hour. sdp up just more than 1%

naaq looking to regain 90 points of yesterday's loss we'll be right back.

it's jobs friday

the labor department wraps 2018. what does the new year hold for jobs in america? our panel is here to talk about it hope for a trade deal? futures in the green this morning after the ministry says they will hold trade talks next week and fed-a-palooza. we begin with our interview with cleveland fed president loretta mester in a few minutes. as the final hour of "squawk box" begins right now. ♪ live from the most powerful city in the world, new york, this is "squawk box. >> good morning and welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square. i'm joe kernen along with becky

quick and mike santoli the futures right now are indicated up 277, almost 278 the dow getting back less than half of yesterday. it was 660 down yesterday. as the day wore on, the attempts to rally were just met with -- >> it had a lot to absorb. the bond market -- yields kept crashing that ism number took people by surprise in the last hour, it's going to weigh the nasdaq heavily >> exactly all right. and the aforementioned yields, let's look at treasuries this morning on the first reporting of employment report but it is last year's. it's december and we're at 260 which i don't know we say it. it just rolls off our tongue

2.60%. but who would have thunk i thought we were supposed to be 3% easy. but 2.60%. and you think that someone might notice that? but as we'll see -- >> they may. >> they may? >> they may acknowledge that i'm sure they've noticed it whether they acknowledge it. >> they may have been talking about it for weeks in private spheres we don't know about. >> we would hear frit liesman? >> maybe we are watching for the jobs report expecting 176,000 jobs and the unemployment ticking down to 3.6% all of this coming as the expectation of 271,000 jobs took private sector payrolls in december number two, a glimmer of hope for a trade deal

china's commerce ministry saying they will hold meetings monday and tuesday in beijing later current fed chair jay powell will be sitting down to talk to the last two fed lieders janet yellen and ben bernanke. we'll have coverage of that news all day here on cnbc all right. it is time for that big interview of the morning steve liesman is at the american economic association's annual meeting in atlanta he joins us with a special guest. good morning, steve. >> thanks, mike. lots to talk about let me get right no loretta mester >> thanks for having me. >> some people on our air, some market commentators say the expressed intent of federal reserve policy right now is to make people unemployed to throw people out of work and to raise the unemployment rate isn't that what you guys want by

tightening policy here >> absolutely not. we are not -- maximizing employment is our goal we are certainly going to try to run our monetary policy to achieve and maintain those goals. we want a healthy economy. and we're trying to guide our policy in order to achieve those goals. >> but by tightening and raising rates, isn't the outcome of that higher unemployment. >> we don't want the economy to overheat we know when we went into a recession, that wasn't a good outcome for anyone yet we don't want to put on the brakes on the economy. right? we want to calibrate our policy so we can maintain the expansion, keep people working, keep the economy healthy. >> that's not what markets appear to think you're doing markets are taking a negative message from the federal reserve. what do you hear what signals do you hear from the downdraft in stocks with low

interest rates right now is it telling you maybe you have the outlook wrong here and maybe you should slow down or pause? >> so i think there are a lot of currents affecting the market. i think there are downside risks to the economy we've seen some slowdown in europe and in china. we saw the ism index still showing growth in manufacturing but at a slower pace i think that's what's going on i think we weren't expecting 3% growth next year now we're trying to calibrate our policy to that outlook again, we're going to take the signals from the market. their assessment of the risk could be different from ours we're going to look at those as well as the information we get from our business contacts about what businesses are doing in terms of their hiring and to guide policy i think we're in a good spot

with policy actually we're ahead of the curve i don't think we're behind the curve. >> you don't think the policy is too tight here >> i do not. i think basically we are at a good spot. we can take time we don't have inflation running ahead. we don't see it accelerating we see it around 2% which is good we see strong labor markets which is good. and we have time to assess the situation. so i think we're actually in a good spot. >> do you forecast the fed will tighten more next year >> our meeting forecasts across all has a few more rate increases for next year. this is all dependent on how the economy performs right? we're going to look at the data, look at our business contact information from both the labor market side, the consumer side, and business side. and we're going to use that to inform our outlook for the economy. again, we're starting at a really good spot the economy was very strong last year these are good things. now we're going to a bit slower growth as we anticipated and now we're sort of calibrating to that. >> if i'm a market participant

here and i see the economy performing the way the consensus of the fed believes it will perform, 2.3% gdp, unemployment rate ticks down to 3.5%, inflation remains stable should i expect two rate hikes from the federal reserve >> i think that's what our best estimate is in terms of the median one or two rate hikes, right is about where we're seeing the economy now. it will really depend on how the economy performs but frankly, i think that's a really good forecast if we got an economy that performed that well, soft landing into a slowdown toward trend growth, we should be happy with that. >> i want to get the question to the anchors. but quick, you voted for an increase in december, right? >> i did >> okay. before you went into that meeting, global economies were already weak the market had turned down interest rates were lower and trade problems were already out

there. in the face of those four problems, you didn't see an issue or reason to pause >> no. because i think on the other side was the actual hard data that we got from our business people were that, yes, there were concerns about trade policy and there continue to be there's uncertainty around that. but it hasn't really impacted the business plans they were trying to hire they were having trouble finding qualifying workers in fact, that was actually hurting their ability to fill orders they were not changing their investment plans we had some firms that said they were thinking about maybe changing their investment plans. but overall, right it was a cautious, you know, optimism that things were going to go through. but again, that's the actual monetary policy-making process we had to take into account all the day today from the markets and the businesses and the consumer side. and use that to assess our -- where we want policy to be. >> my colleagues in englewood cliffs have a question. >> you kind of asked what i was

going to ask you followed up at the same time i raised my hand, steve. but just to ask it again, president midweester, if we hav good economy as you said, the economy continues to perform well, but we don't see any inflation pickup into next year, why does it make sense at this point to predict two rate increases? >> well, we're always looking forward, right lohr r if we have to protect where is the economy going and what's the policy to achieve those outcomes you don't set policy and then say, okay, what's the economy doing? it's all sort of part of the mix. you're right if we don't have inflation moving -- you're exactly right if we didn't foresee that inflation was moving up, then we could be stopping here >> okay. didn't sound like that

>> it's going to be where is the economy going, where is it going and what's the appropriate policy to get there. >> it sounded like -- >> we all wrote down our forecasts and in those forecasts, right we all had to put down an appropriate policy path. but i'm open to sort of saying the economy tell us, right maybe we pause for awhile. we assess things, and we look at where the economy is going we can't look backward >> i don't know what that means. i don't know why it's built into the formula. you have the dual mandates and one of them is full employment or even better than that whatever you can -- you know, as good as we can get in terms of prosperity and growing the economy is the one and then you got the other one which is inflation if the other one doesn't rear its head, i don't see why it's built into the equation that you need two more hikes. because nobody knows -- >> look at it this way, joe. if you were to keep interest rates too low, whatever that means. just say too low, you might have a pickup in inflation.

and so that's the question inflation could get out of hand. so it really is a calibration exercise where do you want policy to be to actually achieve. >> it seems you're being forward looking there in making assumptions about the risks to more inflation but you're ignoring the oil prices and ignoring copper and stock prices you're going to be forward looking, i'd think i would be more worried about that it's already maybe many in danger of overshooting i mean, you're anticipating inflation and you've got no reason to think that it's coming but you're not anticipating a slowdown y -- >> i don't think that that's true i don't think we have no reason to think it's coming i do think that, you know, we're in a good spot we don't see inflation accelerating aggressively. we don't see, you know -- we see a strong labor market. and we see growth decelerating towards our trend. so i agree with you. we're in a good spot i don't think we're ahead of the curve. i don't think we're behind the curve. i think we're in a good spot

and now it's just really assessing the incoming information that we get on where the economy is, what the risks look like going forward. so i do agree with you, we're in a good spot. >> president mester, do you think that policy is currently stimulative? do you think the fed needs to get to a neutral rate? >> i think we're in a range of estimates of neutral i think the economy is going to tell us whether we're at neutral or not that's precisely to me what data dependency means it's going to tell us. if we don't see inflation picking up and we see the labor market staying reasonably strong from where we are now, then that may tell us we're at neutral but if we see inflation picking up, then we're perhaps a little stimulative on the monetary policy side. the economy is going to be telling us where we are. >> i want to follow up on that that's an important comment on that are you saying if inflation remains around 2% and

unemployment bounces around this 3.7% rate that you won't see a need for further rate hikes? that will tell you we're at neutral? >> i certainly would reassess my forecast of where i think the normal rate of unemployment or the long run rate of unemployment will be i think what you've seen over time is we have been reassessing where we think those longer run stars are. so i've certainly lowered my long run employment rate without these balances building up, the for i'll reassess. >> are you assessing the balance sheet? there's a lot of concern the balance sheet was at stealth tightening a lot of people talking about the balance sheet. planning to roll off $600 billion of securities. is that something you should be rethinking >> so i've been very supportive of what we're doing with the balance sheet. i don't think at this point i'm going to reconsider the balance sheet. but i don't agree with the

interpretation out there that we have forgotten about the balance sheet. we have that going on. the balance sheet is being reduced in a very gradual and predictable manner that's part of the economic environment that we take into account when we're setting our interest rates >> but the chairman said it's on autopilot. it's also been said you would not adjust the balance sheet rolloff pretty much until you've brought rates down to zero >> i think if you look at the documents that we put out describing the balance sheet and how we were normal on the balance sheet, we always left open the fact that if the economy deteriorates and we need to change our balance sheet policy, we are going to be changing the policy. so it's on autopilot in the extent of we've set a plan, we've set out what it was, we wanted the markets to understand what the plan was. but if the economy deteriorates in a way that necessitates changing that plan, we are willing to do it i don't foresee that happening in the economy at this point

but we've been open to that and we've said publicly that that's what we plan to do >> becky has a question in new york. >> president mester, you said that you're listening to signals from the market. that goes into your kmieconomic output, but you also say you're listening to business contacts what are you hearing from your business contacts about the economy? >> right so our business contacts have been more optimistic you would get than just looking at the markets. they are certain on policy trade, many of them. the uncertainty around that is something that concerns them but up until, you know, very recently, they hadn't changed their plans. hiring is an issue they have difficulty hiring qualified workers. they've been trying to be creative in how they go about sourcie ining workers. but again it's a difficulty for

them that seems to be the main difficulty no one likes being in an uncertain environment and that is affecting their outlook but again, they haven't really taken hard actions only a few firms have said they really put plans on hold due to the uncertainty. >> but yesterday we heard from apple. actually, might have been the day before that told us that iphone sales are down in china and that's in part due to trade tensions are you seeing this? there was an editorial in "the wall street journal" about the iphone canary. is it a canary is that a sign things are slowing down globally faster than you thought >> we know in china we had reports that the growth is slowing. that informs the outlook you look at the fomc statement from the last meeting, we pointed out we are monitoring global developments and financial market developments. so this is something that we know is part of the economic environment. and certainly something i'm

going to be paying attention to when i'm evaluating the economy going forward talking to business contacts in my district and elsewhere. >> do you have a heightened fear of recession next year or the year after >> i don't foresee the economy is getting into a point of recession. i do believe growth is slowing from the 3% we had last year, but that's, you know, what was expected i don't foresee it to go into recession. of course as you know, you don't predict recession. but again, our goals are to set monetary policy that's consistent with basically maintaining a healthy economy, maintaining the expansion, mainta maintaining, you know, maximum employment and bringing inflation to 2% and maintaining it around 2% >> becky >> president mester, i'm watching on twitter kind of reaction to what you're saying and it's funny because as often happens with twitter, there are some people who think you sound incredibly dovish, others who think you're looking at two more rate hikes for this year

and i can hear the parts in the interview where you've said things to make all these people think all of that. i want to come back at you and just give you a chance maybe you're trying to not let anybody pin you into a corner, but if you were to sit right now and look at things, i heard you say that you think we're in the low end of the neutral rate right now, so maybe that signals we won't see more rate hikes i also heard you say if the economy keeps going along, we could see two more rate hikes. if you had to vote today based on the information you're hearing, would you say raise rates right now again? >> so i think we're in a good spot as i said earlier to actually assess the economy so i don't have to vote today. and i want to take the time that i have to actually evaluate how the economy is going i don't feel an urgency to increase rates from where we are now because i see an impending inflation problem. i don't see that in the data i do think that, you know, we have to take into account that

financial market conditions have tightened. and we want to build that into our forecasts. so again, i don't have to vote now and, you know, i'm not going to give you where i'm going to be voting in the future. i want to take the time i have to evaluate where economic conditions are again, i do think policy is neither ahead of the curve or behind the curve i think we're in a good spot >> i'm going to ask you the last question i want to make sure -- joe, i was expecting you to ask miss mester if she had the jobs number and she'd share it with us early but you didn't do that >> i would like that we only got 11 minutes >> go ahead, joe >> can you give us a number early? no >> a wink or a nod or in ig? >> i do not have the number. >> you could tweet something >> let me ask you. final question here. with all of what's going on with other central banks, the ecb is supposed to begin unwinding or

raising rates later this year, i suppose. i keep getting mixed up we're in 2019 all right japan maybe. is that part of the consideration of the federal reserve right now that there is a global reduction in liquidity going on and that all of it together, not just the fed, is really too much for both economies and markets to bear? >> i don't look at it that way i mean, it's certainly part of the economic environment but again, i'm focused on where is the u.s. economy going? will that affect our markets and economy and setting our monetary policy to do what's best in terms of the dual mandate goals. yes, we look at that as part of the economic environment we sort of understand where other central banks are placing their policy again, they're doing the same things we're doing >> but how much further away from other central banks can we actually get isn't that something that attenuates our ability to just

go it alone? >> we have so set our monetary policy to promote the u.s. economy and our dual mandate goals. that's our focus >> all right president mester, thank you very much for sitting today for this interview. thank you very much. joe, i think she nodded a little bit to the left when you asked about the jobs number. >> tell the fed president, if we get a great 280 number after adp, if this market sells off, i don't know it's bad enjoy the prosperity, steve. bring it in until we see something that offsets -- but you got copper you got crude. you got stock market you got the 10-year. you got all these things that seem to indicate the risk is on that side and i don't see anything on the inflation side and we're still going two. that's the only thing i don't get. if the market sells off today, it seems we're afraid of prosperity anyway, thank you, steve and thank you for bringing us

that interview we will begetting the latest jobs number soon but first let's get some reaction from the interview with loretta mester. it's 2.50% has nothing to do with that probably did you hear we're basically going 2% unless otherwise. >> no, no no >> if we stay in a good spot, we're staying. even if nothing happens. i think she's sort of -- what's so hard about saying we did december we don't know where we're going to be next time based on what we're seeing in the market because the risks don't seem skewed i thought that was dead? >> the fed funds future market right now is saying no rate hikes this year. as it moves.

>> that's right. it is this year. >> but the fact of the matter is -- the fact of the matter is i agree with you she can't go and she knows that powell is speaking in just a few hours. she's not going to get ahead of that remember, though, she was the one who said we needed to raise rates years ago. too low for too long was not good and i think she's probably thinking now, that's what we should have been doing 2015, 25 beeps in december >> go back i'm sorry. i want to interview you and then let you continue just go back down and i want to introduce everyone kate moore from blackrock is here quincy crosby, prudential's chief market strategist. and professor phil swaigel is also here. i was supposed to do that and then i interrupted your stuff. >> what happened is we kept

rates too low for too long what that did was in the real world, forced retail investors, institutional money managers to go for yield wherever they could get it it didn't matter what the fundamentals were. at some point, just give me the yield because i have to match my assets with my liabilities if i'm a retail adviser, i've got to give a return for my clien clients. now the fed seems to think, okay that was a great experiment. it really worked let's try to change it within the course of a year that doesn't work. they went off rules based monetary policy. all of a sudden it seems -- okay let's go back to ruled based monetary policy. you can't unwindwhat you did for ten years and suddenly say it'll all be easy. it'll be like paint drying it is clear it is not like paint drying and they know it. you don't see what you're talking about plus these little inversions do they mean nothing they're sending signals kind of

like help, help, help. are they waiting for the big one? >> probably. >> kate? >> look. no one likes being in an uncertain environment. that's what president mester just said. companies are really not liking it this is a message we're getting consistently from companies. i think that is a very loud message. and what we want is sort of solid and stable data. we want a fed that continues to be data dependent and that doesn't actually move ahead of what feels like the economic growth trajectory at least what they're forecasting now. i think we really want no change in order for companies to go back to business as what had been usual maybe in the first half of 2018 or second half of 2017 and i think this earnings season as companies are talking about their forward guidance, all companies since we had so much conversation around trade and third quarter reporting without it actually biting yet that guidance, that tone, that

commentary is going to mean a lot to the markets over the next couple quarters. >> all right phil, we'll be back and get more from our jobs panel. but we got to hit this number, obviously, on time coming up, it is the final countdown to december payroll report just minutes away. final predictions on the other side of this break stay tuned hey... saved you a seat.

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xfinity mobile is a designed to save you money. even when you've got serious binging to do. wherever your phone takes you, your wireless bill is about to cost a whole lot less. use less data with a network that automatically connects you to the most wifi hotspots in millions of places and the best 4g lte everywhere else. saving you hundreds of dollars a year. and ask how you get xfinity mobile included with your internet. plus, get $200 back when you when you buy a new smartphone. xfinity mobile. it's simple. easy. awesome. click, call or visit a store today.

welcome back to "squawk box," everybody. we are live from the nasdaq market site in times square. we are just one minute away from the government's december jobs report final prediction from our jobs panel. kate moore, quincy crosby, and phil swaigel, also rick santelli phil, quickly give me a number you expect >> i'm thinking 150,000. a little shy of consensus. >> rick, what's your number? >> 210,000 >> quincy, how about you >> i'm looking at 195,000 to 200,000. >> and kate, how about you >> i said 171,000 for this month. >> okay. all numbers that are relatively on the high side the street looking for just over 170,000 too. let's look at where the dow stands ahead of this the futures are indicated up

higher 285 points on the dow also look at what's been happening with the treasury market that's an important one to watch. up 287 for the dow at the 10-year you'll see we've been sitting around 2.6% >> let's get to ylan mui in washington she has the number of the month. >> 312,000 jobs. nonfarm payrolls jumped by 312,000 jobs in december the unemployment rate also rose to 3.9% up from 3.7%. average hourly earnings increased as well. up 11 cents to $27.48 that's a 4% increase month over month and 3.2% increase over the year. there are some big revisions from previous months november jobs number was revised upward 155,000 to 176,000 jobs october also up 237,000 to

274,000 jobs combined, that is 58,000 more jobs than had previously been reported the three-month average for job gains now stands at 254,000 jobs it was also a record month for job gains in health care that sector added 50,000 jobs. that is the most ever since the labor department first started reporting that big sectors include restaurants and bars and construction jobs up 38,000. the labor force participation rate ticked up to 63.1% up from 62.9%. the unemployment rate for adult men, that went up to 3.6% from 3.3% the unemployment rate for blacks also up. 6.6% from 6% the previous month. now, the report also called out the large number of job levers these are people who quit their

jobs or voluntarily left their work their ranks were up by 142,000 people in december there were about 839,000 job levers total the labor department says that number is statistically significant and could have been one of the drivers for that increase in the unemployment rate one reminder is this report does not include the impact of the federal government shutdown. we'll see that in next month's report >> ylan, thank you very much let's get reaction from our jobs panel. as we mentioned, kate moore from blackrock is here. also quincy crosby of prudential financial. phil swaigel from the university of maryland and rick santelli and steve liesman are with us. steve, let's start with you. some big surprises 312,000. well above what. expected at 176,000. also had average hourly earnings quite a bit hotter 0.4% versus the 0.3% the street was expecting. that's a big one too

what's your takeaway, steve? >> i was hoping as a result of this number the fed and the markets might come closer together i'm afraid they're now going to be further apart though i like the way the stock market at the moment is digesting this it does seem to not be scared by this one other thing i want to remind you about, i told you yesterday adp may not get the number exactly right but directionally it's good. it gave 271 which was well above consens consensus. i think there is a lot of snapback and noise in the data so i wouldn't take 300 as the run rate of the economy. i do think 200 is not a bad number i don't think there's any sign in this number of weakening of job growth especially as was correctly emphasized when you get the revisions to the upside in the prior month, it tells you momentum is going in the right way putting this all together is going to tell you that the fed is going to be on track to

hiking this year if things keep going this way and let me emphasize as i think you all know, there are two separate reports here. there's the one with the 300,000. and the household survey is a separate one big influx to the house hold only about 140,000 were said to be employed and the rest at least for the moment are unemployed not crazy to think they'd get jobs next month. >> rick, let's talk about the market reaction to this very quickly. i don't know if it was yesterday or earlier this week when i asked you what the market wanted to hear from this number you said you just didn't know. it's a surprise to anybody how the market reacts to this. particularly when steve says if we're on track with numbers like this, this tells us the fed would continue to raise rates this year. >> i'm not going to define this through the eyes of the fed. it makes no sense to me.

i look at it this way. it's good for the economy, good for the country. the jobs number was very solid certain things are excellent okay the labor force participation rate moving up 0.2% is phenomenal we didn't think they were going to come back in the workforce. we've reached peak possible jobs, keeping up with the population sorry. but that hasn't worked we've seen some steady ticking up in '18 continuing in '19. the wages are stellar. so the fed would have to raise is the interpretation which is going to be bad for equities i harken back a year ago when many investors were saying oh, my god, interest rates are going up this is horrible rates went up, economy went up, stocks went up i think that model is a good model to concentrate on. i'm not sure that we're as solid as we were in january, but the other issue is negative feedback loops from global dynamics still

will be a consideration of the fed even though pricing on the wage side is firming up which is always something the fed needs to pay close attention to. >> phil, what should we pay more attention to >> i look closely at the participation rate because that's where the fed has been wrong. their expectation of inflation is back ward looking based on the unemployment rate being below their long-term. and participation keeps going up they've missed that, the inflation pressures are less than they think. and today's blockbuster participation rate shows that again. >> kate, focus on the labor market participation rate. because it kind of allows for the market to look beyond the strong headline number on some level. also perhaps allows chairman powell today to kind of put this in some context, this number, right? not to say, first of all you're

going to be able to right it it's so strong you've got to say there's some effect on here. it's not the going run rate. you can also remain data dependent. because maybe even though we got a hot wage number, we got people coming in. >> look. i was really focused on the wage number coming into today in part because of after the weak ism and surveys and guidance we were getting before the earnings season, people were getting really anxious and the consumer is a key part of the we're going to continue to expand albeit at a slower pace this year theory. and if the consumer was falling apart, the labor market started to soften, if wages were not as strong, i think that would be another shock to the equity market sentiment and would be really tough for investors who are really scared about putting on risk. this number, the 0.4% month over month and we're at 3.2% year over year, that's a good number.

we want consumers to be able to spend, but we still want the fed to give us this message and powell today to give us this message and next week when he speaks, data dependent we're not going to tighten such that we really curtail what is a decent and long expansion. >> but the participation rate, that could make it a whole different ball game. it's so good >> it is good. >> that gives us some slack. but if you go back to the dual mandate, okay? they're satisfying so well the prosperity dual mandate. take a victory lap you're satisfying that now, on the other side, if the participation rate allows you to worry less about the price stability mandate, then don't worry about that right now i just don't see why -- i mean, the market's hanging in there okay but the specter of a 312 number sounds like my god they're going to go back to the phillips curve analysis and say we have to raise it's almost knee jerk, isn't it? that they have to? if the participation rate can

rise, they may not have to, right? >> just so you remember what caused that first selloff in 2018, it was that payroll report with waging moving higher than -- >> but we also want that. >> the good bit of data is auto sales that everyone thought was going to tumble actually held up and actually was more than the market had expected. >> was up 1% for the fourth year in a row >> exactly >> i'm sorry, steve, what was that you wanted in too? >> i just wanted to ask kate given that we have a 300,000 number, you have unemployment at 3.9% and you have the revisions upward, where do the risks lay for policy makers? i guess i suggest they lay more towards higher inflation even though as joe correctly says, you're at this 2% rate you've been there. doesn't seem to be building pressures. but if you're a policy maker and you're making a policy for the future based on your assessment of risk, wouldn't you think that

those risks would be towards higher inflation rather than stable or lower? >> we had this push and pull of inflation. on one hand we've had slightly rising wages and a lot of companies complaining about the amount of talent and how difficult it is to find people with the right skill sets and how competitive it is especially at those more skilled jobs on the other hand, we have more and more companies investing in technology and thinking really longer term about maintaining a lower cost structure so i think throughout the cycle we've had companies look to sort of maintain their margins. we haven't had that mass deterioration and that kind of fear we had inflation would pick up and erode the companies hasn't manifest. so this is a really complicated inflation picture when it comes to corporates. i have to say, you know, we're going to watch very closely over the next quarters how companies manage their cost structures even if they -- >> where's the bond vigilantes at 2.6% with the -- why ignore,

you know, commodities? why ignore the 2.6% on the 10-year even though they're raising rates? why ignore all the things right before your face just assuming that a lot of job growth will just, like night follows day, bring inflation. where are you seeing the indications of inflation where's the risk there >> you don't, joe. you're right about that. my own point is -- >> it's a phillips curve thing you're back to the phillips curve. >> no. the fed is at or below on inflation. growth has been above target every indication from the jobs number today is strong growth continues. >> steve, only if you assume the participation rate can't go up then they're not necessarily below. >> right >> you saw we moved up to 3.9% if we get to 4%, 4.5%, 5% and that's the real flunumbers? >> the unemployment rate >> no. what if the participation rate

moves up because more people are in the workforce such good things such great things. >> what would. that that regard, joe, just the mechanics of that is you'd bring people into the workforce, raise the participation rate they would get jobs and keep the unemployment rate stable or going down is identify got to come back to the work of krueger and others who say there is slack in the economy but there are millions on the side that are willing to come into the workforce and come back to work it has not to do up so far >> when do we get to bond vigilante? when do you see some angst about long-term rates? are we tethered to japan and germany still or something >> i think we are tethered to germany and japan. i think there's a risk hon trade as well. when it's said okay you can come back into stocks -- and by the way, i think the bond market now is forecasting no rate hikes.

>> if you news that there was going to be no inflation, would you say let's go for it? just add as many jobs as we can? >> i would, joe. if it were up to me, i'd bring it up one more time maybe. maybe two to get to 2.75% rate because i remember the '70s where we thought everything was hunky-dory for awhile. i agree it's a different world but tls a different world if you remember if the fed was to stop at three, we would be at the bottom of where it cut to in most other recessions. to argue that rates are too high, i'm still a believer there is still some addition coming to the economy from the tax cuts. i don't hear anybody else saying that >> you love the tax cuts now well, let it roll. roll the dice. let it go. let them take effect >> well, then in a year from now people will say the fed was too loose, they let the bubble go

and got a big recession. >> rick, let's talk about what's happening in the markets i haven't seen the latest tick on the 10-year but before it was 2.599% bring us up to date there. >> you're seeing all maturities up in yield. which is nice. the market is not a bad number the equity market is darn close to where it was. the point i wanted to bring up is is the fed going to be realtime really looking at the data try to encompass it? if you call your broker in a half hour and say, listen. what'd you think of the number if he says i'm not sure yet. you hang up and call another broker good litmus test today is if jay powell and company really use today's data in their discussions, in their answers, that would give me confidence. if i get the static

bureaucratic, we haven't had a chance to look at it yet, that would turn me off. i know that sounds simplistic. but that's what i want to hear i want to hear jay powell do what all these people do be astute in the market. look at the strong data, look at the way everything moves and tell us what he thinks it means. if he doesn't really use today's data, i'll be really disappointed >> i mean, that's a huge great question i'll bring that back to our panel too. kate, why don't we start with you? just this idea when they say they're data dependent, what data are they talking about? >> a million different data points it's not just the payrolls number of course they have to be considered at the ism yesterday. of course the financial conditions they need to be considered as president mester was talking about with corporate feedback. there's a lot of data to take in and use to form an opinion so there are people who are far better experts than i am, but i would imagine they talk about the bounce risk today.

then next week we'll see how powell speaks. >> i think the most important thing for the market itself is when companies tell us about their revenue growth because the one thing we know in real life is when revenue comes down, companies want to make their bottom line. they cut spending and ultimately fire people. that's the way the real world works. >> phil, you still here? you've been very patient, phil >> you know, remember these data are from the week of the 12th. they're pretty old this is the second week of december and since then we've had an unexpected shutdown, unexpected deceleration of lots of things on the real side of the economy. and frankly dysfunction here in washington you know, that's going to affect the outlook. i think the fed's got to pay attention to that as much as to the really strong data today >> we've got stuff happening in the stock market, too, i don't know if you notice that. >> oh, yeah. >> all right we want to thank our jobs panel today.

kate moore, quincy crosby, phil swagel, rick santelli, and steve liesman. thank you, everybody coming up, we'll check in on the maetrk's biggest movers following the jobs report. stay tuned you're watching "squawk box" on cnbc ♪ memories. what we deliver by delivering.

welcome back to "squawk box," everybody. the december jobs report showing a huge gain of 312,000 the street was only looking for 176,000. so that was a much stronger number than had been anticipated. the unemployment rate ticked slightly higher. it went up to 3.9% when the street expected it to decline to 3.6% 3.7% had been the number from the previous time around then the average hourly wages, that was up 0.4% versus the 0.3% that had been anticipated. also very strong participation numbers. and those are all things that the market's kind of chewing through. as a result we're looking at the futures. they've been pretty much unchanged. dow futures before we got these numbers were up 287 now they're

up 285 >> they have gone down >> we've been watching it but it's basically where we started. you can call this unch 10-year yield up from 2.559 we'll watch this closely >> in a perfect world, that's such a great number. stock market gain should have doubled. >> we were down 2.5% yesterday should have doubled. some of the recession concerns >> we'll talk to jim cramer about all of this en wwhe come back sfx: [phone ringing] you still have service? call the insurance company it's them, calling us. it's going to be a week before they can get through on these roads shhh, sorry, i didn't catch that. i said ask how soon they can be here not you. right now? what's now? he says they're surveying our property now they're probably at the wrong house i don't see any hovering his name is hovering? look up?

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>> we've been more optimistic than what you would get from just looking at the markets. they are certainly concerned about trade policy, many of them they are, you know, the uncertainty around that is something that concerns them up until, you know, very recently they had not changed their plans. >> let's get to the new york stock exchange jim cramer joins us now. i'm affected by it the minute i start saying i love this number, i love the participation, i get excited and i think i shouldn't. i have to feel bad this is too fast this is too much you watch fed president mester, what got me, jim, their estimate is for 2.3 gdp, maybe no increase in inflation.

since when is gdp something you need to rein in? when did we get brainwashed into believing that 2.3 is somehow something we need to be concerned with on being too hot? why can't we do 3.3? >> well, because the people who run the fed are using old models they are using what galbraith taught me in the '70s. using data which indicates we should have raging inflation data which indicates there are not more people to find these jobs using data that i think says there are too many people at work if we could cut that down, there will be more slack wage also no longer grow at 3% they're using data which indicates the working person should not be able to make as much money i think it is shameful i think that it is out of sync, not with the president, but out of sync with the country

i don't know where these people are from did she talk to beth moody right in her area, cleveland why is that stock down long growth has slowed why has long growth slowed fed. when i say do homework, i say pick up the phone and call the people who talk to me every day. maybe people don't tell the truth to the fed her position is ill-advised. she doesn't seem to realize it on one hand, we have to be data dependent. another question, we have to do one or two hikes if i told you on one hand you have to buy ibm, on the other hand you have to sell it in what world would i be considered rigorous? maybe a world that shouldn't be in charge of the country's finances >> don't you think that -- what are you expecting from powell today? seeing the -- >> more blabber.

>> he will probably do something, on the top of drudge, boom, 312. i see it, i love t when i start feeling guilty >> i lived in my car for six months i'd be grateful for this kind of employment 1977 someone earlier was saying we don't want the '70s. the '70s didn't have a lot of jobs a lot of it had to do with -- with the '60s, we went guns, butter, then had terrible leadership in the wouhite house i listen to this and i say i have to understand how rich they must be. were they professors adjunct professors here wrist were they people who say jim help us, help us i'm older and fortunately i'm not as -- let's just say, imprudent. the fed is the one that's imprudent. >> i think if it wasn't for the

specter of more hikes, the market will be giving back most of yesterday's losses. this did alleviate concerns. >> 3% short rate, 2.25 long rate, i don't know maybe under some curve that works. not any i've seen. >> jim, it will be good to today. >> do the homework nus.e will see you in a couple mite that's later today much more from fed speak

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the jobs report the first big news to hit the markets. the next is jerome powell who will be speaking in a bit. mike, thank you for being here this week. >> was great >> you guys have a great weekend. we'll see you back here on monday right now it's time for "squawk on the street. ♪ good morning welcome to "squawk on the street," i'm david faber with jim cramer we're live from the new york stock exchange carl quintanilla has the morning off. jerome powell, janet yellen and ben bernanke, that's a powerhouse fed panel we'll have live coverage of that starting in about an hour, hour and 15 minutes or so let's look at futures as we start with trading at the nyse in 30 minutes. we're looking for a higher open. european markets are in th