tv Bloomberg Markets Balance of Power Bloomberg June 1, 2018 12:00pm-1:00pm EDT
president trump roils job stay with a tweet. more than one hour before the get a was released. we will discuss the reaction and the report. the political fallout on the u.s. decision to move forward with tariffs on imported steel and aluminum from allies, including canada, and mexico and the european union. italy populous five start movement swept to power in a spectacular reversal of political fortunes, it brings a finish to three months of deadlock. david: let's get a check on the markets. looking at good news. nasdaq,he s&p 500, dow, rising in the wake of the jobs report. a lower than estimated
employment report overall. especially, stronger than estimated wage gains. this is the biggest gain for the s&p 500 since tuesday. -- i should say wednesday because we are a holiday shortened week. yes, a rally but not an unusual one. given recent moves we have seen. week,s interesting this the performance of the three major averages on the bloomberg, a chart of that, there has been do virgins in the major averages. the virgins in the major averages, usually not that different but this week the dow back by a half a percent along with this trade back-and-forth. s&p up .4% and the nasdaq up 1.5%, far outpacing the gains in the other major averages. tech has been doing well this week. retailers,within lululemon on the one hand with sales growth outpacing what
analysts estimated, up 19%. 12.2% is what analysts were looking for an operating margin widening. abercrombie & fitch, initially shares up in the wake of the report that on the conference call, management said overseas efforts have yielded some benefits but have not been able to offset the headwinds that we see in traffic. those shares fell by 9%. big lots, on the heels of dollar tree and dollar general, misting estimate that cutting forecast for the full year and shares down by 7%. outside of stocks, watching the ripple effect in other assets, jobs report, u.s. open not much movement. -- u.s. dollars not much movement. yields going up with the 10 year yield not at 3% but going up by four basis point in the session today in reaction to that. we have been watching the financials closely. the small-cap financials have been catching up to the large-cap financings --
financials. the larger cap are in lieu. -- blue. earlier an outperformance of the large caps and small catching up with smaller regional banks outperforming over the past couple of weeks. david: thank you, julie appeared the government released jobs numbers at 8:30 showed healthy growth, pretty much as we expected. but the president tweeted earlier than expected saying, looking forward to seeing the employment numbers at 8:30 this morning and the two-year treasury and the dollar both shot up on the news. alan krueger was responsible for getting the president the jobs numbers early but did not remember any president talking about having the jobs numbers in advance. >> i cannot remember a president commenting on the jobs numbers. they are treated like state secrets.
surprising. the reason why the omb has the procedure is to prevent unnecessary politicization of the numbers. and to reduce unnecessary volatility. riccadonna.is carl man who first told me about the president tweet. he came running to the set. he said, can you believe this. >> that is unprecedented. i was wondering if there was merit to revising my forecast one hour ahead of the number. -- based do it that on on analysis and not on tweets. when he said that, that changed expectations that we would see a strong report. given his recent remarks, a
signal that the employment rate would be the mover and not be stronger payroll trend. there were only about four economist of the 75 surveyed by bloomberg that were looking for a decline in the unemployment rate because last time it fell it took seven months to get the next notch lower and now just took one month. you saw the dollar move and treasuries move ahead of the report. people may be positioned accordingly after the tweet. shery: lowest level since 1969. >> ties 2000 but if we want to find a lower level, 1969. shery: headline numbers good but what about the inside baseball? >> once we got into the details, it was encouraging. a little bit of lull in hiring over the last two months. that was washed away in the results today. was was produced --
weakness in service sector. we had been cautioning our readers to focus on the fact that goods sector hiring was robust, construction hiring or manufacturing hiring. it has a large economic multiple and gave us confidence that sector hiring was rebounding. the other side of the story is the wage pressure trend. with ther call right rise in average hourly earnings. that tells us that we are getting closer to the level that should be consistent with the 2% inflation objective the fed is looking for with the average -- it's that inflation target reasonably correlated -- the fed inflation target reasonably correlated. david: i want to look at another aspect of these numbers that is important, african-american unemployment rate. lowest on record. still a gap. but pretty extraordinary.
>> still a gap with a general population. whoe look at the groups historically have had the high level of unemployment, african-americans, hispanics, and these gaps have been closing, evidence of an economy that is running a full bore in reducing this. rate 3.8% unemployment could be overstating the amount of labor scarcity out there right now. neel kashkari, after the jobs report, reminded us of that and the point we are reducing that and pulling a lot of potential fence sitters in the labor market, those in demographic groups or people at the very early stages of their career, or late stages of their career, it is pulling them back into the labor market. i back, given the wage pressure trend, the partition --
participation rate will recover later this year. david: we are adding jobs at the labor participation rate went down. u6 went down. >> all the moving parts do not move in perfect harmony any given month. if we look at wage pressure trends compared to changes in participation over time, there is a very loose correlation. but meaningful. i suspect, as we see rates -- wage pressure go up over the year, we have been waiting years, 2018 is the year, but as the wage pressure trend increases, you will see participation increase which will blunt some downward momentum. shery: how much did today's numbers matter, given that in the broader context of things, we are expecting the june rate hike? >> the june rate hike was fait
accompli. i do not think today changes that. what theas we look at market is pricing into the rate hikes later this year, september hike, potentially december hike, that had come off considerably in the last couple of days. last couple of weeks, rather. back, put trends move in place winning the other direction after the jobs results. it keeps us on track for the september increase. a lot of things that can happen ahead of the december move. that is very much in question. david: what about december? four vs. three? are we getting back up? couple of days, odds of a december hike less than one in three. up to 60% about a month ago and now down below one in three, now 40%, 50% probability of a
december move, where the fed wants it. their mindot made up in their mind about the december meeting and we will have to wait and see the data. i suspect a stronger dollar and these stories we hear in europe and beyond rumors about may lead the fed to say why bother in december. david: they like the option in the meantime. who could blame them. thank you. the chief u.s. economist for bloomberg economics. shery: america first or america alone? president trump facing blowback for the united states closest allies and members of his own party over his tariffs. we will discuss the political fallout with the chairman of the american conservative union next. this is bloomberg. ♪
is bloomberg markets: balance of power. i am shery ahn. david: i am david westin. toa letter from kim jong-un president trump expresses a desire to meet without making big concessions. that is according to the wall street journal. a top aide is expected to hand deliver a letter to president trump today. officials have repeatedly said a summit would be aimed at the denuclearization of north korea. the trump administration is preparing an unprecedented intervention into energy markets. according to a memo, the government wants to use emergency authority to order grid operators to buy electricity from struggling coal and nuclear plants. a move to extend the lives of the plants. the italian president has sworn in the first populist government
in western europe. 18 ministers took the oath of office bid including the prime minister. the antiestablishment five-star movement and the anti-immigrant party agreed to former -- form a coalition government after a political deadlock appeared a formal handing over of the government is scheduled today. confidence votes on the new government in parliament our next week. the trump administration has ofked off investigations market rigging that began under the justice department. the u.s. has opened a criminal probe into whether traders manipulated prices for fannie mae and freddie mac bonds. it focuses on secondary market trades for the mortgage firms corporate debt. global news 24 hours a day, on air and at tic toc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am mark crumpton. this is bloomberg. david: dumb.
bad news, big mistake, abuse of authority are what some members of congress at about the tariffs on europe, canada, and mexico. this was from republicans. our allies subject to the tariffs were equally harsh but more diplomatic. bring in ae, we supportive for the president, matt schlapp, thank you for being with us. matt: great to be with you. david: you know the president and talk with the president. how much of this trait action is ideological? he says things that unfair and wrong, as opposed to getting jobs and good paying jobs for the american citizens? some people say this will not help overall jobs. matt: i think it is both. what the republicans who are -- for the republicans reflexively saying tariffs are bad, and i am not a tariffs guy, they just
drafted a bill that would have had a border adjustment tax that would have put a tax or tariff on everything from socks to underwear to cars, dishwashers, everything. they are reacting to a tariff on that, a little bit strange their tax bill would have put a tariff on everything but they just did not call it a tariff. that is the problem with politics, the lingo get in the way of the intent. the intent of donald trump is to say or are critical markets and there are critical products that america must continue to play a role in producing. he believes steel and aluminum are two of those. almost every nation on the earth agrees with that. they have steel or aluminum production and want to make sure they have some domestic supply because the impact of national security is in critical -- and critical infrastructure. use a small amount of steel and aluminum in military
equipment. conservativer of orthodoxy, not just imposing tariffs, he wants quotas, that is what he got in south korea and argentina but that does not strike me as conservative. the government managing all the trade. matt: people think ronald reagan is a paragon of conservatism but he also believed that trade should be free. he was able to negotiate quotas with the country of japan and japanese companies. it comes down to, is there reciprocity? that is what conservatives are looking for. free is a great term. a great idea. it does not exist in trade. all of these are negotiated contracts. donald trump is trying to get a better contract for americans. the problem is that, if he goes down a path, and it leads to more economic austerity for americans, they pay more for products, people losing their
jobs, we have moved from reciprocity to protectionism, which has negative economic consequences. a fine line between the two. the president will be held accountable. shery: to your point, some say this will help the steel and aluminum industry but if you look at steel exports, out of the united states, half of it goes to canada and the other half goes to mexico. not that much to china. who is it helping? matt: basically, what we have in the global steel market is a glut, a lower supply which lead to people dumping steel. the reason american steel is going to canada and mexico, there is huge transportation costs. that goes into it. the reason japan and mexico are coming to america is because that cost is negated. your question is a fair
question. that is, why start here? one of the reasons the president i think is starting with what you may call neighbors and allies is because he wants to make sure they understand there is a consequence to 20 years of america getting the short end of the stick in these trade relationships. the president said it will not happen anymore. they love americans rooting him on as america tries to get a better deal. they better get that deal. shery: at the same time, most conservatives would agree to being tougher on china when it comes to ip. matt: yes. that is coming. shery: those are coming but will this impact to the u.s. standing againste allies --
china's trade practices, instead of going out alone? matt: you make a fair point, we have operated for the last 30 years on an international consensus on these major questions on trade. the problem with the international consensus, even with allies, they expect america to pay more in terms of costs, and for the american economy to get less than the benefits. america is so big and strong and be the world economy. we can handle the short end of the stick. a big and long-term impact on americans across the country who voted for donald trump for many reasons. the number one reason was, give us hope that we can make more money. that we can get better benefits and better salaries. and our kids and grandkids can feel they can get a job. that was the big driving political question going on in the country. david: thank you very much for joining us. matt schlapp, chairman of the
shery: this is bloomberg markets: balance of power. i am shery ahn. david: i am david westin walmart is sharing -- having the shareholder meeting in fayetteville, arkansas. this is jobs day. walmart employs a lot of people. they have made steps to increase compensation and benefits. how much of that was a topic of the shareholders meeting? >> that was a very interesting topic. almost like a plant it on jobs day, they are the largest
private employer in the nation with 1.5 million people. that was a topic. they used a tax benefit to increase the minimum wage to $11. it was brought up yesterday they needed to do more. they will not raise the minimum wage again. they talked about the other opportunities they give employees. academy, they were touting that this academy, theye touting that this morning. and other things like the parental leave they have been talking about. and the new tuition program they rolled out on wednesday. they are talking about it and note the retail market is tight. that was one of the sectors that grew this morning. nationalbove the average of retail for the clip rate. see wages attract and retain employees. that has been the focus. shery: what about what they are doing on the business side? trying really hard to boost e-commerce. what is going on? >> it is so interesting.
we know the big competitor is amazon. they talk about the same-store sales, the physical presence they have, the rollout of the groceries, the pick out dust pick up curbside and the grocery delivery, want to get to 2000 locations. balancing that with the e-commerce side. we had a meeting yesterday, you have greg who runs the store's, and mark who runs the e-commerce, they were sitting side-by-side. it show the dichotomy between them. mark joked that greg makes money and he loses it. it is a constant balance, leveraging their physical presence. no other store has that. with continuing to grow in e-commerce and making a lot of investment. when it comes to technology and their app. that is a question for shareholders. said it stanley analyst is always the balance between
growth and investing in growth, and margins and the pressure they have seen on margins. shareholders have been patient. the stock price performance this year, they may be reflective of the balancing act between the profitability and the slowing versus the effort they make to compete long-term. shery: taylor riggs, thank you. coming from the walmart shareholders meeting. coming up, china has always been trade enemy number one for president trump. will his tariffs push away u.s. allies when the white house needs the most to pressure beijing? we will discuss. this is bloomberg. ♪ two, down, back up!
points, reversing and rebounding from yesterday's losses but still headed for weekly declines. the s&p 500, most sectors in the green, led by tech and materials. solid jobs data reinforcing expectations for a fed rate hike coming in june. the 10 year yield holding at 2.9%. david: for first word news, we go to mark crumpton. mark: larry kudlow is defending president trump's tweet today were the president appeared to hint about a favorable jobs report one hour before the report was released. >> i make a call whether to let him know or not. it just so happens last evening i let him know. he likes to tweet. officials are typically prohibited from sharing the information before its official release, while the president appeared to have broken protocol designed to prevent investors from getting an early jump on
the latest round of monthly numbers. president didthe not disclose any confidential data in the tweet. todayo rajoy parliament for the last time as spanish prime minister. he lost a no-confidence vote. corruptioner the convictions of former members of his conservative party. he will be replaced by opposition socialist leader pedro sanchez. venezuelan leaders say they are taking steps to release activists who government opponents considered to be political prisoners. they will begin reviewing cases today. upon his contest reelection last month, nicholas maduro promised to unite the politically divided country and call for some prisoners to be freed. four more deaths have been late to a national e. coli outbreak blamed on romaine lettuce, bringing the total to five.
in an update, health officials said nearly 200 people in 35 states were sickened by the lettuce. health officials have tied the upgrade to lettuce grown in yuma, arizona. global news 24 hours a day, on-air, and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am mark crumpton. this is bloomberg. shery: thank you. china has always been the main target for the trump administration's
so, how difficult is it to reverse one? rufus: these countries are taking the position that under the pto rules they would have a right to take retaliatory actions, $12 billion in u.s. exports to canada might be at risk, $4 billion in europe, several billion in other markets around the world. i think what these countries can do -- they don't need to limit it to steel or aluminum. they will select product sectors where will have a political impact in the u.s.. as i said in an earlier program, these countries are learning a lot about our political system, including the congress, electoral college, all the rest. they know the politically sensitive industries to hit. they are also going to look at taking us to the wto, challenging our actions there. since this is an unprecedented use of the national security excuse, i think there will be heavy litigation in the wto for a good period of time. david: the eu talking about hitting bourbon, which happens to come from the home state of majority leader mitch mcconnell. cannot be a coincidence at all. they did not just impose the tariffs. they also exempted countries like south korea, argentina,
because apparently there was an agreement. is that such a bad approach in the end, it countries want to have a more structured trade approach>" w? we have done that in the past. rufus: they did not exempt those countries, they forced them into a cold arrangement. photos have a similar effect on tariffs. they restrict the market. one of the big problems of what they are doing here, this is seriously restricting supply in the u.s. for a number of steel products. on theact that will have in or miss manufacturing activity that depends on using steel and aluminum as input products, those industries are something like 40 to 50 times the size of the steel and aluminum industries. you are already seeing steel prices 50% higher than the world market in the u.s. that means auto, food, products
like hunting supplies, things that you use in your home, are going to get hit with price increases. that is almost inevitable. we are already seeing that. this is a double win before those industries. their competitors around the world get lower prices, they get higher prices, and then they are hit with retaliation on their exports. you have devoted your career to a system of trade by rule, free trade as it were. something has gone wrong. there is a reason president trump is doing this. there are a lot of people across the country who are upset by what they see as the results. where did we go wrong in not making sure the benefits of free trade were distributed evenly across the country, and everyone benefited? that is the core of the problem, isn't it? is a big problem but i need to point out the u.s. auto industry is extremely
healthy right now, doing very well. david: not inflict, michigan. flint, michigan. rufus: auto production has changed dramatically. it takes 1/5 the number of workers to produce an automobile. obviously we have had the impact of technology and other things. shredding our trade agreements and telling our partners we are going to close our markets is not the solution. --3 billion of the world's 7.3 billion of the world's consumers live outside of the u.s. depends ondustry global supply chain to be globally competitive. we cannot compete against japan and europe unless they have access to inexpensive input products. we are part of the global economy now. closing your market and telling your triggering orders to go home is not the way to fix the
problems in flint, michigan. shery: at the same time, these automakers will feel the impact of higher metal prices. president trump saying he wants to create more cars here in the u.s. ,e has asked for an action investigation into imports of carmakers. is there a coherent strategy from the administration when it comes to these different trade actions? rufus: i don't see much coherence there. obviously, if we now start saying that we are going to use national security to restrict all competition from foreign products -- we export $2.2 trillion in goods and services around the world. american agriculture depends on it. a number of our big industries, technology, aircraft, big companies that do a lot of business around the world. we cannot really expect to adopt a pure, economic nationalist approach in the u.s. and not have that impact the rest of our business around the world.
in the long run, that is a big loser for american workers, american jobs, and for the because theseity industries will not prosper if we just close our markets and depend on selling to each other, rather than opening up the world and maintaining strong trade rules. david: thank you for being with us. there is nobody that does more as you about national trade. we appreciate you being here. rufus: my pleasure, thank you. the president of the national foreign trade council. winds of change in europe. a law professor who has never held political office was formed in today as italy's prime minister. this is bloomberg. ♪
shery: "bloomberg markets: balance of power." this is -- this is "bloomberg markets: balance of power." i'm shery ahn. david: i'm david westin. they have come together and named law professor joseph the content as their prime minister. we go to rome with kevin costelloe who covers the western europe economy. we have been following the step-by-step. we understand we have a prime minister. how long is this government likely to last? >> well, it is a full-fledged political government, as they call it in italy. the two parties involved, the leak and the five-star movement have very definite populist ideas, so they will be exerting a lot of pressure on the new prime minister to do what they want. shery: and the problem started with the president vetoing the
finance minister, so who is the new finance minister, does he have the backing? tell us about the cabinet members. >> the new finance minister is a is well but has raised a couple of questions about the euro, currency. he says he wants a debate about that in italy and the rest of europe. he is not calling for an exit from the euro but wants to look at the conditions, reforms that are needed that could make it a permanent currency in europe. david: they may not be talking about leaving europe, but if they spend this amount of money, will they be kicked out? are they committed to this fiscal program? >> the difficult part is behind them. now comes the more difficult part. they need to try to implement their program which does call ,or a lot of action spending
tax cuts, more help for the poor, and a challenging stance toward the european union. all of these things will be more difficult as they try to implement them going forward. you so much, kevin costolo, joining us from rome. let's stay in europe. , tax cuts, more help for thethe e spain.o speaking mariano rajoy has been forced out in a no-confidence vote lead by the country's opposition socialist party. joining us from madrid is our spanish economy reporter. great to have you with us, maria. roy, the first prime minister in modern spain to be ousted by a no-confidence vote. what happens next? >> it is an unprecedented situation to have a prime minister unseated parliament. it was a dramatic moment this morning. now it is out with the old come in with a new. minister sager sanchez was
forced out of his party, made a comeback, and is now prime minister. a week ago if you would ask anybody in spain if he could make it to prime minister, they would have said no. this shows how much things can change quickly. now he will have to come up with a list of ministers. we will have to keep an eye on who the economy minister will be, always important. is important dealing with europe and brussels. what we are hearing at the end of the day is social programs but also saying that they are committed to staying in the european union and the euro. the is being reflected in markets. the ibex 35 rallying on that news. david: as i understand it, what brought us to this path was convictions, corruption that drove the old government out. how different is it likely to be under the new socialist regime? as a matter of substance and policy, will it be different? >> this was a stunning verdict
that we got last week. haryana roy, now former prime minister, is someone who has been through so much in his political career. this corruption scandal was too much. we know that 30 officials from his party were sentenced to more than 300 years in prison, so this was a dramatic situation for him. when it comes to what will change under the new administration, funny enough, the socialists will keep the conservative budget in place, will use that, saying that that could give the new socialist government a little bit of stability until next year. we will have to look at two things that may change. taxes. the socialists say that we will need to look at taxes and create one specifically for banks. in spain that means banko santander and and then of course we had the crisis in catalonia last year.
hope is that with the new government in barcelona, new government here in madrid, we could see tensions potentially ease. you, maria and that is our spanish economist reporter. or the second hour, we turn to retail, discount retail. several have announced earnings this week and chairs are going down. let's bring in lisa abramowicz. how bad is it and why? lisa: it is pretty bad. big lots is one discount retailer that reported this morning. shares are down 6%. this comes with some mixed results on the broader retail sector. so it cannot be extrapolated out to represent the entire space. this is an interesting trend. it shows something happens when the economy does well, discount retailers tend to do worse. this is where people go when they don't have enough money to go elsewhere. in contrast, when the economy
does worse, these stores tend to be better. interestingly, food stamps play a role in this as well. the trump administration has been cutting back some of those programs. dollar, thatfamily company reported earnings yesterday. salesales -- food stamp account for nearly 5% of the stores total sales. week toook at this forget here for the discount retailers, big lots down 7%, dollar tree down nearly 15%, dollar general, 9%. five below will be reporting next week. in anticipation it's also dipping. shery: these companies blaming the weather and transportation cost. lisa: this is the lowest income population. there is a question -- they blame the weather, but they are forecasting earnings-per-share to decline further, at least big
lots is. even though they reported disappointing earnings, they $.60t second-quarter to be to $.70 lower than what people are expecting. shery: thank you for that. coming up, amid the global outcry over u.s. trade policies, all the finance ministers and central bankers of the g7 countries are meeting in whistler. we are there next. this is bloomberg. ♪
does not necessarily contain any significant concessions or threats ahead of that plan summit for june 12 in singapore. you can see him their meeting with secretary of state monk of pao. we know they have already met in new york as well. we now expect president trump to receive the north korean official today at the white house any moment. those pictures are from a previous meeting with secretary of state pompeo ahead of the g7 summit in quebec next week, the finance ministers and central bankers are meeting in whistler. michael is there with the latest. mike, we have heard from the french finance minister calling this not the g7 but g six plus one. give us the latest on the reactions from the u.s. trade tariffs, as well as what's on the agenda. mike: we have been talking all day to finance ministers from man andhe world be to a
woman, they say this has been a different g7 meeting, the atmosphere is different of a poisoned by the u.s. tariffs announced yesterday by the trump administration. philip hammond, the chancellor of the exchequer, says it has changed the dynamic in the room. we also noted that steve mnuchin, the u.s. treasury, has been very low-key here, avoiding most photo opportunities. last night when they had a dinner, he came through the back door. definitely follow from the administration's decision. i spoke with the portuguese finance minister a short time ago, president of the eurogroup. he said the tariffs obligate the g7's ability to work together. entails a reaction along allies, long-time partners, in specific issues that was supposed to bring our economies
forward. we all know that trade benefits everyone, if it is fair and free. we need to continue the multilateral discussions with the wto rules behind it. agenda,u mentioned the shery. saying, they were supposed to talk about ways to keep global growth expanding in to be more inclusive, but a lot of them being put aside for necessary talks with how to deal with united states and how to respond it a real trade war gets going here. david: thank you, michael mckee. reporting from the g7 finance ministers meeting in whistler, british columbia. shery: again, breaking news on north korea. you are looking at the white house because we expect president trump to meet with
.orth korea's kim yong chol he is a former north korean spy, vice chairman of the central committee. he has been in new york speaking to mike pompeo. we heard from the state department on that meeting went well, there was some progress. we are expecting kim yong chol to hand a letter from north korean leader kim jong-il into president trump today. he will arrive anytime. the letter, according to the wall street journal, does not contain any big concessions or threats. we will bring you the latest on that when we get it. this is bloomberg. ♪
>> from new york city, i am jonathan ferro. 30 minutes dedicated to fixed income. this is "bloomberg real yield." coming up, a jobs report leaving the federal reserve on track to deliver more hikes this year. political risk in italy. what is needed most. and a tough week for a former bond king. us why his firm had the biggest order drop in a year. we begin with the jobs report. >> the numbers are strong. >> it is a good, soli