WEBVTT - Darda: nominal GDP actually slowing now 0:00:03.080 --> 0:00:06.160 This is Bloomberg surveillance. We need to figure out a 0:00:06.200 --> 0:00:08.880 better way to get people into work. I think, you know, 0:00:09.000 --> 0:00:12.920 more flexible workplaces, childcare, investments in infrastructure. The number of 0:00:12.960 --> 0:00:16.520 people quitting their jobs has skyrocketed, which you know, people 0:00:16.560 --> 0:00:18.439 don't do that less. They're pretty comfortable that they're gonna 0:00:18.400 --> 0:00:20.759 find another one. If the umployment rate keeps following in 0:00:20.800 --> 0:00:22.759 the way that I think it will, at some point 0:00:22.800 --> 0:00:25.360 the set is probably going to have to tighten more 0:00:25.360 --> 0:00:29.360 aggressively than may expect. Bloomberg Surveillance your link to the 0:00:29.400 --> 0:00:34.280 world of economics, finance, and investment on Bloomberg Radio. Good 0:00:34.280 --> 0:00:37.720 morning and Happy Jobs Day, Michael McKee along with Tom 0:00:37.800 --> 0:00:41.440 Keene at seven am on Wall Street eight pm in Shanghai, 0:00:41.440 --> 0:00:45.520 where China intervened to support its stock market today, keeping 0:00:45.560 --> 0:00:49.040 it from a loss just as the National People's Congress 0:00:49.080 --> 0:00:53.320 gets underway. How convenient, as they say, manipulation or not, 0:00:53.440 --> 0:00:56.360 it encouraged investors around the world ahead of what may 0:00:56.400 --> 0:00:59.160 be a slightly less important than usual jobs report here 0:00:59.200 --> 0:01:01.480 in the US. We will of course have all the 0:01:01.560 --> 0:01:03.920 numbers for you at eight thirty Wall Street time, and 0:01:03.960 --> 0:01:05.880 we have an all star cast to set up the 0:01:05.959 --> 0:01:10.400 report and break it down for you. We will begin 0:01:10.440 --> 0:01:13.039 our conversation with Michael Darnett in just a moment. Also today, 0:01:13.120 --> 0:01:16.840 Robert Gordon, Alan Krueger, Mickey Levy and as always Bill 0:01:16.880 --> 0:01:20.919 Grows from Janice Capital, Scott Mather from Pimco, Black Rocks, 0:01:21.440 --> 0:01:25.520 Rust Custridge help us break everything down ahead of the numbers. 0:01:25.600 --> 0:01:28.600 Here's where we are. China did finish higher, but only 0:01:28.640 --> 0:01:30.720 by half a percent, and it took the government to 0:01:30.920 --> 0:01:33.720 get them there, but that's still enough to encourage buying. 0:01:33.800 --> 0:01:36.400 In the rest of Asia and in Europe, the stocks 0:01:36.520 --> 0:01:39.440 six up two points right now half a percent. The 0:01:39.720 --> 0:01:43.760 Dacks is up ninety eight points right now one percent. 0:01:43.880 --> 0:01:46.399 In London, the foot Sea's up sixty points. That's just 0:01:46.480 --> 0:01:49.200 about one percent. As the back and forth schizophrenia and 0:01:49.240 --> 0:01:53.040 the markets over Brexit continues there uh In the US, 0:01:53.080 --> 0:01:55.600 a more nuanced story, we are up not a lot, 0:01:55.760 --> 0:01:58.040 but ahead of Job's day. There is some green on 0:01:58.080 --> 0:02:00.920 the screen. SMP futures three points higher, tenth of a percent, 0:02:00.960 --> 0:02:03.800 two tenths for Dow Emning futures, twenty nine points at 0:02:03.800 --> 0:02:06.600 a twelve point game for nastac one futures. That's a 0:02:06.720 --> 0:02:09.800 three tenths game ahead of the job's report, bond yields 0:02:09.840 --> 0:02:13.840 actually lower. We'll see how they trade after the numbers 0:02:13.840 --> 0:02:16.280 come out. Ten year one point eight three percent, the 0:02:16.440 --> 0:02:20.160 five year one point three three eighty three basis points 0:02:20.360 --> 0:02:23.080 for your two year yield. Jim Buggle of FTN says 0:02:23.520 --> 0:02:25.720 anything south of a hundred and seventy five thousand or 0:02:25.720 --> 0:02:28.240 north of two hundred thirty thousand top will provoke a 0:02:28.360 --> 0:02:32.160 market reaction today. Interesting, that's nice to hear. We've been 0:02:32.240 --> 0:02:37.480 so distracted. We've been distracted. Yeah, a lot going on, 0:02:37.680 --> 0:02:40.200 and um, we'll get to all the politics and everything 0:02:40.200 --> 0:02:42.639 else as the show goes on. Currency is interesting today, Tom, 0:02:42.840 --> 0:02:46.480 the dollar lower, Um, if we were if we get 0:02:46.480 --> 0:02:48.280 a strong job report, you think it would go the 0:02:48.280 --> 0:02:52.120 other way. Yen one thirteen seventy two year one seven 0:02:52.200 --> 0:02:54.760 both the stronger against the dollar, the pound stronger against 0:02:54.800 --> 0:02:59.800 dollar one and look at gold twelve seventy getting up 0:02:59.840 --> 0:03:05.000 to the up twelve dollars um. What is behind that? 0:03:05.080 --> 0:03:07.679 I don't know. That may get Michael Dart's attention. He's 0:03:07.720 --> 0:03:11.160 the chief economist and m k M Partners Proud Wisconsin 0:03:11.280 --> 0:03:15.359 Whitehawk Warhawk, Whitewater Warhawk I noticed the Lady Warhawks in 0:03:15.400 --> 0:03:18.400 the n c A tournament this year, So congratulations to 0:03:18.560 --> 0:03:23.000 your team. Uh what do you make of the way 0:03:23.000 --> 0:03:25.840 the markets are setting up for this? Uh? It used 0:03:25.840 --> 0:03:30.000 to be bad news good news. Um, the FED was 0:03:30.120 --> 0:03:32.600 at the center of everything. But it doesn't look like 0:03:32.919 --> 0:03:35.760 we're trading that way going into the number today. Yeah, 0:03:35.840 --> 0:03:39.480 I think, Mike, if you just take a small step back. Um, 0:03:39.480 --> 0:03:42.160 you know, markets have jumped up after a big sell 0:03:42.240 --> 0:03:46.520 off coming into the year, basically because the fear when 0:03:46.600 --> 0:03:50.200 we were down almost from the highs of the cycle 0:03:50.280 --> 0:03:52.800 on the S and P, the fear was that manufacturing 0:03:52.880 --> 0:03:55.400 is in recession, the rest of the economy might follow. 0:03:56.040 --> 0:03:59.800 And uh, recently we've had some better data, at least 0:03:59.800 --> 0:04:04.040 some data that suggests while manufacturing is weak, it perhaps 0:04:04.120 --> 0:04:09.040 is stabilizing. The consumption figures for January in particular came 0:04:09.080 --> 0:04:12.320 in better than expected. That's a big chunk at GDP obviously, 0:04:12.440 --> 0:04:17.159 and so that is catalyzed a bit of optimism. Whether 0:04:17.240 --> 0:04:20.080 that will sustain itself, you know, is another question. And 0:04:20.160 --> 0:04:22.160 then of course, you know, we'll see what the numbers 0:04:22.200 --> 0:04:24.679 bring it, you know, at a thirty. But I always 0:04:25.279 --> 0:04:27.960 tell listeners to to look at a moving average and 0:04:28.000 --> 0:04:30.640 not to get too excited about any one number, but 0:04:30.920 --> 0:04:33.560 you know, we end up focusing a lot on a 0:04:33.839 --> 0:04:36.200 one single number every time we get to one of 0:04:36.240 --> 0:04:39.159 these reports. Unfortunately, one of the great themes is wage growth. 0:04:39.200 --> 0:04:41.520 I believe last time we had, you know, a philip 0:04:41.520 --> 0:04:44.479 of interest there Michael mckew was, so I'm straight looking 0:04:44.520 --> 0:04:49.120 at the optimism on wage growth. Will that optimism continue? Well, 0:04:49.160 --> 0:04:52.680 important to remember TOMA, when you're looking at hourly wages, 0:04:52.760 --> 0:04:55.120 it's really the result of not you know, not just 0:04:55.279 --> 0:04:59.400 current nominal GDP, but test past nominal GDP growth and 0:04:59.400 --> 0:05:01.680 how tight the labor market is. So what we're seeing 0:05:01.839 --> 0:05:06.679 is a visible but moderate acceleration in hourly wage growth. 0:05:06.720 --> 0:05:10.080 Unit labor costs have also been growing somewhat faster. Now 0:05:10.240 --> 0:05:15.640 that's caused some optimism that inflation will be rising towards 0:05:15.640 --> 0:05:18.920 the Fed's target. But keep in mind that nominal GDP 0:05:19.080 --> 0:05:22.680 is actually slowing now. We've gone from almost five percent 0:05:23.080 --> 0:05:28.320 in late down to three on nominal GDP UH currently. 0:05:28.720 --> 0:05:31.919 And if top lines are weakening as the cost structure 0:05:32.080 --> 0:05:35.360 is levitating as they set up for a profit squeeze, 0:05:36.080 --> 0:05:39.239 margins look like they peaked for the cycle, GDP profits 0:05:39.279 --> 0:05:43.599 have been weak. On the where I am is for, 0:05:43.760 --> 0:05:49.600 I would recommend that investors stayed defensively, postured and and cautious. 0:05:49.680 --> 0:05:52.160 If we see this market run up to the highs 0:05:52.800 --> 0:05:55.800 of the cycle, I would recommend taking some chips off 0:05:55.839 --> 0:05:59.080 the table. I think we're probably in the last year, 0:05:59.160 --> 0:06:00.960 year and a half business So I wanted to get 0:06:01.000 --> 0:06:03.040 into that where where we are in the cycle because 0:06:03.080 --> 0:06:06.920 a lot of people looking at the markets say recession coming. Yeah, 0:06:06.960 --> 0:06:09.080 well that was the fear coming into the year. The 0:06:09.160 --> 0:06:13.159 data doesn't support that yet. Um, you know, but I 0:06:13.160 --> 0:06:16.680 I do think if we look at weakness in monetary 0:06:16.720 --> 0:06:19.760 indicators and one growth is now down below four percent 0:06:19.880 --> 0:06:23.119 year to year. Obviously, the monetary basis flat post quei 0:06:23.839 --> 0:06:26.560 uh and credit markets under a lot of stress. The 0:06:26.600 --> 0:06:29.840 last couple of weeks we've seen some easing, but we 0:06:29.880 --> 0:06:32.640 have a lot of indicators that are suggesting a late 0:06:32.680 --> 0:06:35.240 cycle environment. Not the least of which I mentioned was 0:06:35.279 --> 0:06:38.400 corporate profits from the GDP accounts. Those tend to peak 0:06:38.560 --> 0:06:41.440 relative to the economy and relative to corporate bond rates 0:06:41.480 --> 0:06:44.359 about two years before a downturn. The peak in this 0:06:44.480 --> 0:06:48.960 cycle so far was um which means that we're quite 0:06:49.080 --> 0:06:51.520 late cycle unless there's a new high. Hard to see 0:06:51.520 --> 0:06:56.000 that with top line growth slowing, wages accelerating moderately. In 0:06:56.040 --> 0:06:59.880 the FED, you know out there having already tightened policy 0:07:00.000 --> 0:07:03.000 and probably would tighten it again if there are signs 0:07:03.040 --> 0:07:05.839 that the growth is re accelerating. The FED has hemmed 0:07:05.920 --> 0:07:09.080 us in the dictates of the Phillips curve model are 0:07:09.120 --> 0:07:12.600 simply that this business cycle will not be allowed to accelerate. 0:07:13.040 --> 0:07:15.800 And unfortunately, if there's a misjudgment, that could mean a 0:07:15.920 --> 0:07:18.400 termination in the cycle, if the FED is out there 0:07:18.400 --> 0:07:21.800 too far in front with them. What we all see 0:07:21.840 --> 0:07:24.559 in the equity market, and there's there's a fair number 0:07:24.560 --> 0:07:27.440 of bulls out there even within whatever the kind of 0:07:27.440 --> 0:07:32.120 bear market you want to describe. It is animal spirits. 0:07:32.200 --> 0:07:36.280 That is emine without question, the merger's low nominal GDP. 0:07:36.840 --> 0:07:40.720 Let's combine to find growth. That's we've seen that in history. 0:07:40.760 --> 0:07:43.840 That's not unusual, right. What will be the outcome of 0:07:43.880 --> 0:07:48.520 it as we see a consolidation of American business, Well, 0:07:48.560 --> 0:07:51.440 I mean, I think you know, unfortunately, at this juncture 0:07:51.480 --> 0:07:54.000 of the cycle, the outcome is that, you know, we're 0:07:54.000 --> 0:07:56.800 probably looking at the last year year and a half 0:07:57.800 --> 0:08:00.600 of the expansion. That's just a very rough guests best 0:08:00.640 --> 0:08:04.480 on guests based on business cycle history and how long 0:08:04.520 --> 0:08:08.840 expansions go after you have important peaks in profits. So 0:08:09.200 --> 0:08:11.720 you know, we're probably getting towards the tail end of 0:08:11.800 --> 0:08:14.400 the of the M M and A cycle and of 0:08:14.480 --> 0:08:17.800 the business cycle at large. Unfortunately, Tom, I'd like to 0:08:17.800 --> 0:08:20.080 be more optimistic, you know, me as somebody who is 0:08:20.240 --> 0:08:23.720 typically runs with the bulls. I was even being because 0:08:23.720 --> 0:08:27.280 you're hanging out with Robert Gordon, no good timing and 0:08:27.320 --> 0:08:29.600 having us, you know, come on today because we do 0:08:29.760 --> 0:08:32.880 share uh, you know, more of a pessimistic view, maybe 0:08:32.920 --> 0:08:36.800 for somewhat different reasons, but usually I'm upbeat and optimistic. 0:08:36.840 --> 0:08:40.760 I've even been called a permable um. But we just 0:08:40.800 --> 0:08:42.920 try to call the cycle and an accurate way with 0:08:42.960 --> 0:08:46.120 the right indicators. And you suggest that the ft is 0:08:46.160 --> 0:08:50.920 Hymnsson and won't let the expansion go there. They have 0:08:50.960 --> 0:08:53.040 been talking some of the some of the core like 0:08:53.080 --> 0:08:55.920 Bill Dudley, but letting the economy run hot. They've only 0:08:56.000 --> 0:08:59.280 raised five basis points. You could probably go a couple 0:08:59.360 --> 0:09:03.280 more increases in the economy won't notice. So what do 0:09:03.320 --> 0:09:05.680 you mean by that they seem to be willing to 0:09:05.760 --> 0:09:09.360 let things go for low Uh. Well, that's true. They've 0:09:09.400 --> 0:09:13.280 talked about a modest overshoot in terms of unemployment falling 0:09:13.280 --> 0:09:15.960 below the level that you know that they think is sustainable, 0:09:16.040 --> 0:09:19.520 which is essentially where it is now. Uh. And their 0:09:19.600 --> 0:09:22.880 view is that that's a leading indicator of inflation, that's 0:09:22.880 --> 0:09:24.960 the Phillips curve. I think that, you know, there's some 0:09:25.000 --> 0:09:30.040 problems with that. Historically the relationships have been anything but tight. Um. 0:09:30.120 --> 0:09:33.360 And you know, I would also be quite concerned about 0:09:33.400 --> 0:09:35.880 the notion that the economy wouldn't notice with a few 0:09:35.880 --> 0:09:38.720 more rate hikes. Consider the fact that the taper, the 0:09:38.840 --> 0:09:41.560 end of QUI in the first twenty five basis point 0:09:41.679 --> 0:09:47.840 rate rise was associated with severe moves in inflation expectations, 0:09:48.120 --> 0:09:52.440 credit market spreads, uh. And you know, volatility in global 0:09:52.480 --> 0:09:55.480 equity prices. And so I do think that the FED 0:09:55.640 --> 0:09:59.080 is powerful, very important. Uh. And has you know, this 0:09:59.120 --> 0:10:02.160 has global public asians. So you know, twenty five basis 0:10:02.160 --> 0:10:04.600 points may not sound like a lot, but it can matter. 0:10:04.880 --> 0:10:08.000 Consider the fact that there have been important downturns associated 0:10:08.000 --> 0:10:11.240 only with small amounts of rate hikes. The Eurozone twenty 0:10:11.320 --> 0:10:14.760 eleven Japan in two thousand and again in oh six 0:10:14.760 --> 0:10:17.320 and oh seven. Michael Darta, thank you so much, Really 0:10:17.679 --> 0:10:19.880 pleased to have you in on this job today. Bloomberg 0:10:19.960 --> 0:10:24.360 surveillance this morning watched by Investco. Factor based strategies can 0:10:24.440 --> 0:10:27.839 help investors focus on a high quality, low volatility and more. 0:10:27.920 --> 0:10:32.360 Learn more and investco dot com slash high conviction. Michael 0:10:32.400 --> 0:10:35.080 Darty gets us started at this hour. Robert Gordon of 0:10:35.160 --> 0:10:39.040 Northwestern University next, and then Bill Gross will follow on 0:10:39.160 --> 0:10:42.319 after the job's report. Alan Krueger with us. Mickey Leady 0:10:42.360 --> 0:10:45.760 as well this morning. Futures up to DOBT futures of 0:10:45.880 --> 0:10:53.280 twenty four gold up ten dollars twelve sixty nine the ounce. Now, 0:10:53.360 --> 0:10:56.320 let's bringing Michael bar with the latest world inational headlines. Michael, 0:10:56.440 --> 0:10:59.080 Mike Tom, thank you very much. Donald Trump used last 0:10:59.160 --> 0:11:03.240 night's Republican presidential debate to fire back at former Massachusetts 0:11:03.200 --> 0:11:07.600 government Romney, who called trampafoni and a conman. Trump called 0:11:07.600 --> 0:11:11.800 theelve Republican nominee failed candidate who just wants to be 0:11:11.880 --> 0:11:15.000 relevant of the Republicans from out Speaker Paul Ryan. The 0:11:15.080 --> 0:11:19.400 Senator John McCain also blasted Trump yesterday Japanese Prime Minister 0:11:19.480 --> 0:11:23.800 Shinzo Abe has decided to temporarily suspend work on moving 0:11:23.800 --> 0:11:27.240 a US marine base in Okinawa and will resume talks 0:11:27.280 --> 0:11:31.240 about the plan. The central government and Okinawa's government have 0:11:31.360 --> 0:11:33.840 been locked in a legal bottle over relocating the base, 0:11:33.920 --> 0:11:37.680 which opponents one off the island entirely. A new trade 0:11:37.679 --> 0:11:40.920 deal with Europe promises to put about two hundred thousand 0:11:40.960 --> 0:11:44.679 Syrian refugees to work. In Jordan's Global News twenty four 0:11:44.720 --> 0:11:47.679 hours a day, powered by our two d journalists and 0:11:47.760 --> 0:11:50.120 more than a hundred fifty news bureaus from around the world. 0:11:50.320 --> 0:11:53.040 I'm Michael bar Night, Tom and Michael, thanks so much. 0:11:53.480 --> 0:11:56.600 It is job's day. We will at eight thirty turn 0:11:56.800 --> 0:11:59.760 to Bill Gross for his perspective not only on the report, 0:12:00.280 --> 0:12:06.839 but on the American economy. Bloomberg s Avalance brought to 0:12:06.880 --> 0:12:09.280 by the Town of Hempstead Industrial Development Agency. Find out 0:12:09.280 --> 0:12:10.640 how to put the Town of Hempstead I d A 0:12:10.760 --> 0:12:12.640 to work for your business. Call one eight hundred five 0:12:12.679 --> 0:12:15.040 nine three three eight seven zero or visit t O 0:12:15.280 --> 0:12:16.679 h I d A dot org.