>> we are still looking at a labor market that is extremely strong. >> this more resilient economy and more persistent inflation today is pushing the fed to be more hawkish. >> it is about the trends. the fed once to see the downtrend it is convincing. >> the market may be too fixated on this will they, won't they question about the recession? >> i think powell muddied the water. >> this is "bloomberg surveillance." jonathan: who remembers payrolls friday? [laughter] what happened to that? good morning, this is bloomberg

surveillance alongside tom keene and lisa abramowicz. only one stock to watch, svp financial group. tom: it is jobs day for 8553 people in santa clara, california. gerard cassidy will join us, michael male will join us. what they are going to tell you is, this is idiosyncratic, not 2008. jonathan: svp ceo apparently told clients, bc after vc came out telling companies to pull out their money. tom: i call it running a bank, but jimmy stewart is not in the movie. fabulous work on this, basically two bond portfolios segregated and they've got to figure out what to do with them now those said deposits are walking out the door. most of the experts i have talked to say they have been clumsy at it. jonathan: let's talk about why

some of those deposits are walking out the door. mike mayo said siv p core issue is the lack of funding, diversification, deposits are from vc which has issues. to us, the larger the bank, the more diversified the funding. i know you agree with that point. lisa: that has been a big distinction on why this is not 2008, what this is going to be is increasing challenge in the smaller, regional banks that do not have diversification and are competing for deposits in a higher interest rate regime where that is going to erode profitability and potentially force them to sell to shore up with assets that otherwise are held to maturity. tom: i do not want to bury people down with a lot of math, a lot baloney. does the silicon valley bank, they have deposits that have grown 180% over pandemic time. there securities that -- that

portfolio mr. mayo is talking about is supposed to match 313%. i never thought about it. i never seen it. as mike mayo and others are saying, this is basically a bond portfolio wrapped around a bank. jonathan: let's be clear. quite normal in banking. this is not a problem if you can hold securities to maturity. this becomes a problem with -- when you have to send the securities. given the bond action in the last 12 months, some of those high quality assets if you are market to market, there are losses. lisa: you do not see losses because you do not have to identify the market to market losses in the quarters that lead up to an issue. until you have to sell. if you start having to sell some of these assets that have not repriced, what happens to some of the less liquid debt? this is the broader market question. what happens to debt that people

thought, maybe it is not going down because? tom:. if we see higher yields, if we see price down, the bottom-line is, do these little events like silicon valley drift over into other major banks? jonathan: let's be clear. the word you keep using, idiosyncratic, we are going to hear it a lot. or is a challenge to the broader banking universe -- there is a challenge to the broader banking universe. there will be a competition for deposits and banks will have to respond. betsy grayson makes the same point. she does not think we've got a big liquidity problem in the banking system. she acknowledges the headwind for the inking system is the

cost of liquidity is high and rising. we are now at the point in a tightening cycle where it is high rates are great for banks until they are not. lisa: deposits are starting to leave. banks are starting to care. remember when we were talking about so many deposits in the banking system, if they lost some, that may be a good thing. now, it is a problem. tom: i know we have got to move on but this is important. everything is fine on the income statement. that is the way banking is. rates go up, banks do better until you come over to a balance sheet analysis. i know it is jobs day friday. it is also balance sheet friday. all of a sudden with these banks, these idiosyncratic moves, we are looking at balance sheet analysis and not income statement analysis. jonathan: let's talk about that jobs number briefly. 225, in case it does not get squeezed in. i will whip through the price

action. futures negative a third of 1% on the s&p. yields are coming in about four basis points on a tenure. 386 -- 3.86. two year yield lower by 20 basis points. a 20 basis point move going into payrolls. do you think it is fair to say that chairman powell does not want a hot print today especially after the price action in the past 24 hours? lisa: 100 percent. he was trying to back away from a 50 basis point hike was a certainty. he would have to be at least having a discussion on why he is not raising 50 basis points. 8:30 am, we get that number, average hourly earnings, the range of estimates on wall street for the headline number. goes from 300,000 down to about 150,000 on the low-end. average hourly earnings might be more important. how much do we still see employees able to charge bigger and eager pay increases?

what is the readthrough in terms of what this means for the expectation of how hi, how fast the fed has to raise rates? i wonder in some ways are we seeing something break in certain parts of the financial sector? does that give the fed a reprieve or does it not? inflation is at the forefront of their consideration. today, president i did eating with ursula von der leyen -- biden meeting with ursula bonder lyon. staying in washington, this is going to be interesting to watch. yellen testifying in front of the house talking about bidens budget. how does she parse through what interest rates mean and what she thinks the consequences of expanding spending versus some of these tax increases potentially good be? jonathan: great work. let's get to our chief market strategist at core entergy. what a morning. what did you think about what was unfolding yesterday through the session and into the afternoon? >> i think the word

idiosyncratic is right. that is not the issue. to me, the issue is, we are in a situation the fed senior loan officer survey, it has never showed this type of tightening and lending standards without being near a recession or in a recession. is this siv be situation going to create easing or even more tight, lending standards? the problem the market has is not necessarily siv be, it is, where are you going to get the money? the bank lending standards are at a point you have always been in a recession. we can cover the yield curve at nausea over 93% of possible yield curves between three months and 30 years. take your favorite yield curve. 93% of them are inverted. we already are at full employment. the source of increased money to invest in things is drying up and this did not help it. tom: i agree.

the idea money is the new plug, the new interest rate regime. it is simple, i was talking a about the great zombie roll up. we are there. you and i know from our experience back to robert mcteer in the savings and loans crisis, banks do not roll up. the government steps in and fixes these things before they roll up their it is what we are seeing in bank tension nothing more than part of the great zombie roll up, given new rates? tony: it is an impact of the fastest rate hike cycle in history. faster than paul volcker, more significant on an early basis then paul volcker. i have known -- i am known as a permeable, when money is available. it is the opposite when money is not available. we have this idea that we are going to have a soft landing in a place where you've got a generationally leveraged system. we are finding out what that means.

not necessarily in where people look. it is not ever where people look, it is where people cannot see. where they cannot see is the biggest growth area of finance in the last 15 years is private equity, private credit and venture. when we look at these factors, the idea we are going to have a no landing or a soft landing in agent -- in a generationally leveraged system with the fastest rate hike will in history does not make sense. it is not the banks that are blowing up. the problem we have is employment. employment goes down on an escalator and up on an elevator. there is always a catalyst that makes it spike like that. the catalyst is typically when you have a money shutdown and companies have to lay people off. lisa: a money shutdown, which we have not seen yet. i am wondering when you say you are the opposite of a permeable, perhaps a perma-bear, what does it mean to be defensive at a time when people over the past couple of months have been saying, go into the big banks?

that is the defensive trade in equities. tony: to give you an idea of what the bank performance has been like, right before i came out, i looked at it. three day rate of change on the kbw stock index is down 12%. the only times i could find when i looked back at that going back a few cycles is 1998, 2002, 2008, 2011, august of 2015 and 2020. clearly, the banking system is telling us that there is some kind of issue here. i would say that money has been shut down. real liquidity is measured by m2 money supply. the first time in its history that i could find in the data i could find on bloomberg, the first time it has had negative year-over-year movement. granted, we had an incredible amount of liquidity coming out of the pandemic. people spent that. that is the inflation on a higher growth start we have already seen. when you have already spent it,

you cannot say, we are offsetting the pandemic liquidity because it is gone. you need no -- new money. the answer is nothing i can see here is creating new money. we have been in this for over a year. i have been in this situation for over a year. that is not the time to go running for the hills. it is time to think about what you want to buy when you get that final leg lower, that third leg lower of bad news becomes bad news. lisa: do you think what we are seeing over silicon valley bank will change the dial for the and how willing they are to hike rates? tony: yes. i think it gives them an idea of what can happen in things they cannot see. the fed does not have oversight on private equity, private credit and venture. that is where the real liquidity squeeze has come on the rise in rates. i think it is going to give them an idea of what this rise in rates means to small companies and emerging companies, which are the heartbeat of employment.

jonathan: this was wonderful, great to kick off this morning with you. tony dwyer there. this is the potential to be an absolute nightmare for the federal reserve. you get a hot payrolls print as many, next week on cpi, face the prospect of leaving to back away for financials issues before you conquer inflation. can you imagine a conversation going 50 baked is -- 50 basis points when there isn't a single bank in the united states facing a run on itself? lisa: what happens if we get a hot print? what if we get stagflation but worse, where you have companies that are feeling the effects of higher rates but is not working to curtail inflation? this federal reserve has to address inflation. when you look at rate hiking expectations, we are banking at about 5.5% by the end of september. jonathan: tommy just published, weekly yesterday's bank selloffs

were overdone. a lot of the community share that view this morning. tom: i did a technique full analysis -- a technical analysis. i looked at j.p. morgan as the mothership. they did not break down. they pulled down to new levels. i get it. but, i fully -- i am fully in support with the gentleman from tucker arnold dave me says. jonathan: you've got the whole resume. we will talk about profit headwinds with jared cassidy coming up. futures negative .3%. apparently, it is still payrolls friday. lisa: for now. what if we live to like 100? that's 35 years of being retired. i don't want to outlive our money. and i have been eating all these stupid chia seeds! i could totally live to be 100! why do i keep taking such good care of my- since we started working with empower, we're able to get all our financial questions answered,

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>> this is pure panic. i think it is a one-off, linked to silicone valley effect. today is a reminder you should keep your deposits on the heavily safe deposited and well-regulated large institutions. when people change returns or services in small, financial institutions, they are always running interest. jonathan: catching up with francine earlier this morning. if you are just tuning in, equity futures negative about .4% on the s&p 500. drama continues with silicone

valley bank, stop down close to 42%. kbw bank index followed closely in the united states. down for four state -- straight days. the biggest weekly loss since spring of 2020. that gives u.n. idea about the magnitude of the move we have seen so far this week. we will catch up with jared cassidy. he did publish a little earlier this morning, yesterday's bank stocks selloffs overdone. the analyst committee on wall street are making the same point, what is happening over here, very idiosyncratic. what is happening in the broader banking sector is a profit headwinds story we can build on later. tom: what is important is to look at selected ratios, compare and contrast. when i compare silicon valley bank, i know you've got a christmas account out there with securities to deposit, the amount of bonds and stuff on the balance sheet is compared to

deposits, it is 70%. it -- at him in t bank of buffalo, widely regarded as the mother of quality, regional banks, it is 17%. you compare 70% with 17%. that shows how odd this bank is. jonathan: i think the bigger point a lot of analysts would make is the lack of diversification behind that apposite face when you specialize in something quite volatile that is going -- that is getting hammered by higher interest rates. that is the point mike mayo and others are making. tom: to me, they are separate. this is an idiosyncratic hat trick. i'm going to catch up with jared cassidy, our guest coming up. jonathan: are you going to get to our guest? tom: i'm going to get to our guest. stay with us, even through jobs day in two hours. philip richards winds us now with bloomberg intelligence.

philip, just as simple as i can. i know it is not related to european banking, but what is on the balance sheet of european banks? >> fair question. something comes to you you are making now in terms of, what are the risks and who is next? it is natural if the bank is in trouble, the market action is, who is next? the banks -- their position about city maker was essentially zero. that said, the reason the banks are in a bid and down 5% or 6%, they are using more assets than they've got. banks essentially 1.6 trillion -- tom: i look at something jean-claude to stay told me a few years ago.

jon ferro has made it clear, mortgage rates are different in your. inflation is different. utility bills are different. do higher interest rates diffuse wicker, more sooner, more rapid to european banks? philip: it depends which banks you are referring to in europe. what matters in these banks is this sovereign debt holding. the issue of bonds by the governance across europe that because -- interest rates are a grace -- are rising. the banks, if holding those bonds, can be putting losses on those balance sheets. jonathan: it is a profit story as well, the headwinds these banks might face now. interest margins that might have to be reduced. competition for deposits. how do you see that playing out now? philip: we are in a sector with

european banks about -- shot up 45% the last few months. there has been a huge rally, that is probably why there has been such a strong reaction to the news. we have had these big interest rate rises, what will the risks, what happens next? lisa: have we seen this before in terms of how quickly banks have had to increase rates that are paying depositors? it is difficult to understand the volume of new loans that can capture higher rates, that can add to profitability. philip: exactly the case, this is about how quickly they can pass on those rises. banks have not been passing on enough of those rate increases to savings or people's balances. over the next few months, that will be what has happened. the banks are forced to pass on

much of the -- to the banks. banks want to hold onto their deposit bases and will have to increase rates further. jonathan: thanks for being with us. drawing that distinction between the existing chill challenges that -- existential challenges that some of these banks face. stop down in the premarket by 42%. you could be right, lisa, to say it was not a broader challenge. to your point earlier, people have been bold up. it starts to reflect in a different direction. lisa: raising rates are great for banks that have cheap capital. that is the crux of the issue. cheap capital comes from a solid deposit base. right now, we are looking at the potential for profits getting

eroded at a time i do not understand how many loan some of these banks can responsibly make to capture the higher yields. that is the question, how much can you increase credit card loans, increase risky corporate credit, especially if that company is facing a recession and high interest payments? jonathan: we've got to talk about a policy challenge facing the federal reserve. can you imagine if jay powell had day one testimony on capitol hill? lisa: if it does change things, if you end up with a fed that does not raise rates as quickly, do you end up with more persistent inflation but a more solid financial system? the fed put has a lower are to come into play. jonathan: they are a rock and a hard place now. i wonder if we experienced in the u.k. was a taste of things to come in september, october time. he challenges the bank of england had to confront. if you face the risk of needing to comfort financial stability

concerns at a time where you have to dress high inflation, it is problematic. we saw how that played out in the u.k. tom: it was predicted by a number of smart people. it played out in the u.k., a strategy that ran amok because of interest rate changes and everybody knew the strategy would run amok if they were interest rate changes. some of us that our fossils harking back to the early 1980's, middle 1980's, we are 32% of savings and loan associations failed in america. yes, that was like jimmy stewart in the movies of long ago. i cannot emphasize enough how these are idiosyncratic shops, but to lisa's point, do they redound over to the other banking system? the focal point is that the institution that is watching this is the fed. it is not fcc, the alphabet soup that is out there. this is on chairman powell's

shoulders, the part we never talk about. lisa: what does safety mean, defensive mean in a market reshaped by higher rates? people said it was the big banks. does that change with a different profitability equation? jonathan: going back to the treasury market yesterday. to see the two year yield down 20 points--20 basis points. lisa: you would expect the fed to move. jonathan: we saw the move after claims, didn't we? we agree on that? coming into payrolls off the back of the story. rome cassidy of rbc is coming up next -- jerome cassidy of rbc is coming up next. ♪

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jonathan: good morning. what a week. equity futures down .3% on the s&p 500. on the nasdaq, unchanged. futures going nowhere. i will get to moving svp in a moment. in the bond market, we have been over the place. two-year, 4.82. highest we have seen it going back to 2007. 26 basis point move lower going into payrolls.

unbelievable. tom: this is unheard of. we had something not happen overnight in this carnage. to houston vanilla spread -- to use tens vanilla spread this inverted. the longer range and shorter paper three-month 230 year continued to record in virshon. i have never observed that. that is what you saw last night among three month paper. jonathan: i think chairman powell earlier this week lowered it 50 basis points. there is a belief the fed has to back away, which is why we saw a massive move on the front end of the curve yesterday. tom: i've thought of this coming in yesterday. do you get on board with chairman powell to remain unified or do you show the debate what is going on -- jonathan: steve englander sat

there, what did we say, lighting candles? hoping? sitting there, hoping it does not have a three handle, a four, maybe it has a one. and we cannot talk about 50 basis points again and see how this plays a. here is silicon valley bank svp down about 44%. down 60% in yesterday session. tom: for global wall street, it is idiosyncratic or so they hope. our team has worked overnight to bring you the best of global wall street and banking. we begin this morning with gerard cassidy, head of u.s. bank bank equity strategy at rbc capital markets. he counted banks thursday and the savings crisis of when we would go over -- go out of business over the weekend. i mentioned the crisis of the 1980's earlier. this is not this. what is it? if it is idiosyncratic, how do

you describe it? gerard: thank you for having me. you are right, this is not what we saw in the crisis. as you remember back in those days, it was a credit crisis. this is not an issue with credit at all with any of the banks. what has happened is the deposits, everybody is concerned about deposit outflows. as you know, during the pandemic because of quantitative easing, the fed pumped in over $3 trillion of deposits into the banking system and now, they are starting to leave. these wholesale deposits or search deposits are the deposits that are likely to leave. this system has too many deposits if you can believe that. the court issue is, we -- core issue is, we need to focus on core deposits, these are grandma and grandpa deposits, very sticky and difficult to grow

because it takes years to gather those deposits. the banks with high concentrations of those deposits , bank of america is a good example, those deposits are sticking and there is not real concerns about those deposits. tom: is this a moment to acquire shares in quality banking? can you use the opportunity of the last couple of days in crypto and in silicon valley to go strong with small banks that you are noted for, or dare i say, the money center thanks? gerard: absolutely. we understand how fearful it is and the uncertainty out there, no doubt about it. when you come to core banking businesses that the regional banks, community banks and money centers do, it is a strong, stable business. there is no systemic risk here. when the stocks sell off like yesterday, it is a buying opportunity for the long-term investor, also traders can get

involved in hedge funds. we do not see this as a systemic crisis, nothing compared to 2008, 2009 or the crisis. jonathan: just because this is not a systemic issue for the big names does not necessarily mean it is a buying opportunity. there is clearly a prophet headwind emerging for these big banks. i understand they do not have the diversification issues, a concentrated deposit base, the unique nature. there is a competition for deposits. what we are trying to understand, what are the profit hyde wins -- headwinds are seeing here? can you frame that for us and what it means for the bottom line of these banks? gerard: you put your thumb right on it. we held our 27th annual financial conference this week. which, lowered the guidance on their net interest revenue

growth because of higher deposit betas. what is happening is, consumers are moving into a more higher rate deposits, which is squeezing the margins as we go forward. we expect net interest margin for the industry to peak in the first quarter or second quarter of this year. there will be that headwind on the margin. we have to remember, banks can expand their balance sheets through loan growth depending on how the economic outlook is. net interest income growth, which last year, was spectacular -- we still see for most banks 8% to 10% top line growth in net interest income, that will help them. we think this year the banks as a group will one -- will be one of the first groups that put eps year-over-year growth as we see 2023 today. lisa: i want to build on this idea of growing their loan books at a time where we could potentially be facing serious headwinds. a lot of companies are not going

to want to borrow at the rates these banks are going to offer. how fruitful are they going to find the lending market, how risky are the assets they are going to have to lock themselves into in order to capture that higher rate? gerard: it is a good question. in our forecast for 2023, we expect loan growth to slow. history has shown the industries loan both will grow with minimal gdp. if you expect inflation this year to average 3%, 0% real gdp growth or slightly negative, you are looking at 3% to 4% loan growth this year. 3% to 5% is not an unreasonable estimate at this time. we have seen that in other slowdowns where loan growth continues. the loans have to be the banks have to discuss. the real risk has been credit quality. credit quality today is good.

if we do not have some sort of severe, economic downturn, credit should hang in this year. it will be higher cost for credit, but nothing like what we saw in past downturns. lisa: we are talking about the best capitalized banks. the issue is smaller, regional banks with concentrated areas of creditors. bill ackerman said the failure of svp could destroy the failure of an important driver of the economy because of the component of the --the economy and recommended private capital cannot provide a solution, a bailout should be considered. thoughts? gerard: i think that is premature. when you look at silicon valley, though it is important to the silicon valley area in the country and private equity, they are not the only players there. our biggest banks are involved in lending into their private equity business. single-handedly, silicon valley, it is important to that part of

the business but not the only bank that have pe customers or venture capital. i think it is premature to be saying that at this time. jonathan: bramo says, thoughts, gerard? she's really trying to bite her time and not say what she really thinks. lisa: [laughter] jonathan: i am going to butcher something jeremy hines said. speak to me like a golden retriever. this is a bit of a blank spot for me. it is regulation p rate i would love your thoughts. i know you follow this closely. can you talk about the degree of regulatory scrutiny some of these smaller banks have received compared to larger banks and the problems that might emerge for smaller cap banks? gerard: the regulators have done a good job in changing this system compared to where we were pre-financial crisis. you just touched on the largest banks both through a stress test

every year. the banks banking system has been fortified very strongly since the financial crisis. even the smaller banks, they go through a very rigorous regulatory process. i would say the regulatory picture and the capital levels are strong for these banks. that is the critical part. when you look at the pre-financial crisis days, the level of capital and the banking system back then was materially lower than today. same thing with liquidity. all the banks have to measure their liquidity is a liquidity coverage ratio where you have to measure the amount of deposit outflow over the next 30 days. in that ratio, you've got to carry the good assets to handle that. the liquidity capital is strong. we know uncertain -- that is what we saw yesterday. we are seeing it again. i think things will stabilize and people will realize that this is not a 2008, 2009, or

even a 1990 moment. jonathan: if you are listening to this onorato, it means you cannot see the view of gerard's living room. what is that? tom: he lives so large in maine, the lobster shack down the road is $80 for a lobster roll. jonathan: we are doing it wrong. we are doing it all wrong. i feel like we are doing it all wrong. gerard, thank you, sir. on the banks, tom. tom: it is who he is. with mike mayo coming up, he has a reputation with a more larger, regional bank and monday's interbank of view. aurora cassidy helped invent the bringing to market of not tens, but hundreds and hundreds of small banks. he has seen many banks or what ever reason fail. when he tells me this is idiosyncratic, i am leaning forward. jonathan: that cynical distrust

of the -- on wall street. our many people at home saying, yeah, right. we've got to ask the same questions. this bank is down another 43% in the premarket. lisa: it raises serious questions about who is next. not to say there are others that are big banks that are going to collapse. jonathan: futures negative point 1% on the s&p 500. we have got to talk about payrolls at some point. tom: [laughter] jonathan: futures negative .1%. from new york, this is bloomberg. ♪ lisa: keeping you up-to-date with news from around the world with the first word. after a big gain of 517,000 jobs in january, all eyes on today's employment report. another round of hefty payroll numbers could some of the federal reserve's resolve to

hold interest rates higher for longer. economists protect 200 to 5000 jobs were added last month, but there are signs the fed's hikes are taking hold with jobless claims rising to the highest since december. donald trump likely to face criminal charges in new york. according to the new york times, the former president was told he could appear before a grand jury next week if he wants to testify. that is said to be a sign an indictment could follow soon. the case has to do with the former president's role in paying hush money to a poor and star. in ukraine, president zelenskyy accusing russia of deliberately targeting a nuclear power plant. the latest missile garage knocked out its power for a sixth time. zelenskyy called for sanctions to be placed on the russian nuclear industry prayed the british economy showed its resilience in the face of strikes in rising prices. gross domestic product up better-than-expected .3% in january. that followed .5% drop in the

summer. hopes the u.k. economy may avoid a protracted recession. bank of england will cut spending on climate change work and redirect money to core functions. that is because of rising pressures on its costs. bloomberg has learned boe will focus on function such as financial stability, markets and digital currency. global news powered by more than 2,700 journalists and analysts in over 120 countries. i am lisa mateo. this is bloomberg. ♪ this is ge aerospace, advancing flight for future generations. ♪ welcome to a new era of flight. prizefighter...

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and possibly getting demand under control. if that narrative gains traction, you could easily overshoot peak rates currently price. jonathan: inamed -- it is amazing how the markets shaved -- shift like that. it starts to sound dated and stale. i imagine that might change when we get payrolls in one hour and 43 minutes. lisa: bank analysts describe the stock trading range as neurotic. it is a neurotic trading range. that is how i feel now. jonathan: this whole year has been neurotic. equities look like this going into payrolls, futures on the s&p 500 negative by not even .1%. yields come in about five basis points on a 10 year. if you would like to hear the estimates, i am here.

225 is the median estimate, the previous number was 500 17,000. unemployment expected to stay at 3.4%. if you are looking at average hourly earnings, 0.3% is the month on month estimate. 4.7% is the year -- tom: i have no idea. 30 days ago, we had a commercial that showed us dumbfounded. are we going to be dumbfounded again? michael mayo coming up from wells fargo. we are thrilled. sarah house joins us now, senior economist at wells fargo. no bank questions this morning. what i do is i get nonfarm payrolls, look at revisions, take a three-month moving average. are we going to get the guesstimate on revisions adjusted today, are you going to see substantial revisions? >> i do not think we are going

to see substantial revisions to the january numbers. we had a strong response rate, it was not wildly different from the january averages. i think there is less scope from that. what we are looking for instead is another strong number. 270,000, consistent with the jobs market still flying. at the same time, we do not think hiring can defy the gravity of fed tightening forever. we think a slowdown is likely in the spring. tom: your study of history, understanding that banking comes under a fed purview as well. are the gyrations we are seeing in the land of mike mayo, do they -- over to your world? /sarah: what they show is that fed tightening has consequences. we have seen the economy has tremendous momentum. that is why we have continued to see such strong inflation, the jobs market holding up well.

we do not expect to see the labor market remain immune from the tightening that we have seen today. i think it is more that it has taken longer for those effects to be felt given the strength of momentum and the many of the unique aspects around the current environment. everything from the household balance sheets, corporate balance sheets. it is taking longer for that to be felt, but it will be felt. lisa: we were talking about the move in the two year yield yesterday and continuing today highlights the market believes what we saw with respect to silicon valley bank and other instructions could potentially allow the fed to step away from the pace of rate hikes had been expecting two days ago. do you think that is correct? sarah: i think directionally, it signals the fed has to be more cautious further into this tightening cycle. we saw them argue for the 25 basis point hike last time, that step down was supported by the fact we have seen quite a bit of

tightening all ready. for 50 basis point hikes through that move. what we are seeing in markets the past 24 hour supports that notion we are getting to the fine tuning stage, we have done the catch up. now, the fed has to be more deliberate in where they go from here. lisa: do you think all things being equal, we are likely to see a 25 basis point rate hike, this green lit the slower grind as we wait and see what other casualties there are? sarah: the debate is not settled on the march rate hike, whether 25 or 50. we've got this big employment report coming up today. we have the cpi report tuesday. there is a bunch of activity data, industrial production, retail sales that we would get before the next fed meeting that will indicate whether we have seen momentum we accelerate the past few months, maybe january was not a blip or if january was

a one-off. jonathan: the thing i am going to do when this number comes out is maybe not look at this month's number and go to the revision column. are you expecting a big revision? sarah: i do not think we will see a significant one. the response rate was not low for the january number. i think even if you go back over the past years, you have to go back to 1994 to see a bigger downward revision for january then 50,000. in terms of a negative downward revision. i think it will be important, but i am not sure we will get as big of a move as people are expecting. ultimately, i think the january hot print was driven by the mild winter weather. it is not a matter of that response rate. jonathan: sarah house of wells fargo on the latest of the jobs report that comes out at 8:30 eastern time. which has taken second place to

what is going on in the banking sector. silicon valley bank down 45%. the message coming from the c-suite, stay calm. you never want to say stay calm. what is amazing is what clients are saying, there is vc fund after bc fund telling clients to pull their money. tom: we have a banner up that i disagree with. to prevent bank run, i disagree with that completely. jonathan: what is wrong with that? tom: this is a contrived, venture capital, private equity bank. it is not a true bank. it is a private equity run. it is not a bank. it -- years ago when i drove by it, i go and talk at stanford. you drive in silicon valley and every buddy back to new is not doing mom and pop bank stuff. this is not jimmy stewart. i did not think it is a bank.

it is a private equity vc exercise. jonathan: ok. tom: i take immense issue conflating this with other banks. jonathan: i do not think anyone is. that banner does not imply they are. i think it is unique to svb. he is trying to prevent a bank run at this point, isn't he? tom: i think he is on the phone with bc people begging them not to pull out their institutional sized deposits. jonathan: by definition, isn't that trying to prevent a bank run? tom: it has never been a normal bank. jonathan: i am not saying it is, but it is still a bank. lisa: this was at the root of some of the issues in 2008. when we had the structured vehicles that had short-term paper that were backed by long-term instruments, it has dissimilarity. when you have this mismatch of the charities and you have to

redeem on the short end, you could potentially cause revaluation on the longer-term assets. that is one of the big questions. jonathan: do you want a final word? tom: i think bloomberg intelligence overnight did phenomenal work on this. they show on this balance sheet friday, on their balance sheet is a very unique, constructed loan operation to silicon valley. but, as gerard cassidy said, it is not a bank. it is not a normal bank. jonathan: i do not want to get into semantics. you cannot say both at the same time. we all understand it has a very concentrated deposit client base and a specific industry. i think we all understand that. tom: i have never felt it is a bank. 18 years ago, it is a very unique, institution working within private equity, venture

capital within silicon valley. jonathan: it is down now by 44%. tom: deposits out the door. jonathan: looking ahead to payrolls, new estimates. 225,000 is the median estimate, the previous number was 517,000. coming into this, a major move in the bond market. down five or six basins points -- basis point on a two-year. a 20 basis point move. from new york city, this is bloomberg. ♪

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>> we are still looking at a labor market that is extremely strong. >> this more resilient economy and more persistent inflation today is pushing the fed to be more hawkish. >> it is about the trends. the fed wants to see a drowned tend -- downtrend. >> and i think powell muddied the water a bit this week. >> this is "bloomberg surveillance" with tom keene, jonathan ferro and sumrall it's

-- lisa abramowicz. jonathan: from new york city this morning, good morning. this is "bloomberg surveillance" with equity futures negative by .1%. the attention on a bank, svb is down 45% in the premarket. payrolls later this morning. tom: day two for many, but this is a different bank that has had substantial issues on their balance sheet for not one day, not two days, but this was seen coming by many people that were outside the discussion. jonathan: what a trend in the bond market to have jay powell adjusting the pace of tightening , introducing the risk of a 50 basis point hike, some people suggesting he lowered the bar for 50 in the event of the last day or so. are we raising the bar again? lisa: i think that is what the market was suggesting in the move on the two-year.

we have been talking about, are the rate hikes having impact on the economy? it feels like things around the markets in the fall theist sections of the economy -- frothiest sections of the market pocket. jonathan: they are hoping we do not get a hot print this morning. lisa: nobody is wondering if we are entering a new financial crisis. the risk of potentially seeing more casualties in this type of tightening and the fed not willing to respond because they are fighting inflation is the worst scenario. jonathan: certainly a different scenario to markets. lisa is going to run through the day. your bond market, 10 year, 3.84%. two year, 4.82.

jonathan: tom: vvix -the vixwas- 1819. tom: equities have changed bonds. lisa: we are looking at the headline number. the range is 100 50,000 between the low and the high. the expectation for a lack of revision downward for january is going to be important. i am watching average hourly earnings. the expectation is they will rise on a year over year basis. how much does that keep up the pressure of the headline number? how do the two-year numbers respond to the quagmire the fed is in? the response will either be a 50 basis point or a 25 basis point move, especially in the turmoil on the skirts of the frothy-iest

parts of the market. today, president biden is meeting with ursula von der leyen, they are -- 9:00 a.m., janet yellen testifying in front of the house talking about the debt ceiling, bidens budget he laid out yesterday. fascinating to see this coming at a time of rising rates, higher inflation. how does she address that? she's got a tough job selling something at a tenuous moment. jonathan: looking forward to headlines that come out of that testimony. tom: i am glad we brought up secretary chair yellen. in the next is of this, if we get 50, she has got to sit there with powell and advise on our financial system. those are two good people to have with a little bit of experience. jonathan: potentially, a conversation later this year about the debt ceiling. that is the last thing they want

to talk about. tom: what are you doing this weekend? watching football. one of my doing this weekend, watching congressional budget office. jonathan: that is how serious this is. tom: pretty miserable. jonathan: pretty miserable. priya, earlier this week, it felt like powell lowered the bar. did it get raised again? priya: i do not think so. i think the fed is spooked by inflation. they are not willing to let the lags play out. they are data-dependent. i think the labor market is strong and there is good labor going on. the labor market is going to be more lacking than it has historically been. chair powell did say there will be pain, i think there is more pain in-store as we think this is going to be a strong report, wages are going to be high. the fed has understood to get inflation, all services -- down to 2%, you need wages to come down.

we do not think we are close to that. if we get 200,000 today, the fed is likely going 50 and are going to potentially open the door for another 50. they downshifted, they are down to the base being a tool. they deemphasized the pace, now the pace is a tool they are using to manage inflation. this data dependent fed is difficult. that is why you have to be nimble. tom: your call of 2022 on the curve of inversion, i've got to go inside baseball this morning and was stunned two hours ago to see the twos tense spread which you followed this inverted, but the broader three month, 30 year bond spread continued to invert. i believe i have never seen that. what does it signal to you when the vanilla spread this invert sandy broader spread inverts -- and the broader spread inverts?

priya: in terms of monetary policy, the three month, 30 year is restrictive. why the twos tends is this inverted, we are pricing cuts in 2024. i think the market was too aggressive in taking this cuts out. if you have no landing in 2023, you are probably having a much harder landing in 2024. the more we raise the dominant rate, the more cuts we price in in 2024, 2025. i think if we get a strong number and the fed follows through, they go 50, raise the terminal rate about 6%, 6.5%, that is hard for the two year to keep rallying. i think the curve stays inverted. i think some of this was the market extrapolating from svb into the financial sector.

we should talk about qt, nobody is linking financials to qt. that is tighten policy, taking deposits out of the system. i think the fed is telling us they are going to continue with qt. i think there is more pain ahead. i think the fed is focused on inflation. i think they are likely to overdo it here. lisa: are you basically modeling a 6.5% fed funds rate? priya: i think the market has to keep that as a decent chance. i think 6% as possible. if they go 50 and shipped to 25, by july, you are at 6%. it is not that hard to see. there are lags to the system. i would highlight a lot of people are exploiting -- we turn neutral depending on your view of inflation either in september in terms of fed policy or december. it has been three months since december. it is going to take time. our view is recession as fourth-quarter early mixture

phenomena. fed is focused on inflation and our data dependent, moving data point by data point. if the economy is going to slow down too late for the fed to realize, they are basing it on lagging indicators. lisa: how low is the bar with today's jobs market, today's jobs report with respect to raising 50 basis points especially in light of the casualties we are starting to see emerge? priya: i think financial conditions matter. we have a cpi report. i would look at wages today. today, if we get 250,000, i think there lightly to go 50. let's look at cpi report, financial conditions between now and the fed meeting. if there is significant tightening and financial conditions, i think the fed can tangoe with 25 and raise the terminal. financial conditions have only marginally tightened, we get another strong cpi and payrolls, i think the bar is low.

chair powell suggests he is maybe regretting downshifting in january or that dovish press conference. i think he is trying to overcompensate. the fed is trying to figure it out, as we all are, as data comes out. unfortunately, the data i think we are looking at lagging indicators. jonathan: why are they hesitant to fast-forward, accelerate qt? he has talked about interest rates being the primary talk. why are they so risk-averse around that story? priya: these are non-linear impacts. we do not know how to model how much of the balance sheet is both in basis points, it is highly nonlinear. i think the first one trillion of the balance sheet does not matter. the second trillion becomes harder, starts to push real rates higher. five to 10 year real rates move up. deposits fee. how do banks manage their

deposit flight? we are seeing -- sve might be a special case. the banking system for the first time is dealing with negative deposit growth year-over-year. jonathan: got to squeeze this in before you go. you have doubled down on that call over 10 year. have seen massive moves in the two-year this week. what you make of this week? priya: i would stay away from the front end. the data is still strong. the 10 year, you are setting up for a recession. it is also a hedge against risk assets. tom: did i hear her model 0.6%? did she clear that through?mccormick jonathan: maybe we go as far 6%? priya: it is market pricing has to incorporate 6%, 6.5%. the fed opened the door for higher rates. tom: she does these trials on

bloomberg surveillance. [laughter] jonathan: priya, thank you. doubling down on the 10 year call. 10 year now, 3.85. perhaps the emergence of risk in the last 24 hours would not dissuade the federal reserve. maybe we get a hot print later. tom: if she does 50-50 in a 6.5 you, all of the sudden, the bramo call looks -- jonathan: coming up in about 30 minutes, this rock star of the financial analyst community, mike mayo at wells fargo is going to join us. at about 7:45 eastern time. ♪ lisa: keeping you up-to-date with news from around the world with the first word. today's u.s. jobs report is likely to help determine what fed policymakers do when they meet later this month.

it is estimated the economy added 225,000 jobs last month. traders slightly pared back there bets on half a point interest rate hike after thursday's initial jobless claims report. the number was the highest since december. panic across the startup world due to the health of silicon valley bank. a major lending -- lender to companies. founders and other venture capitalists have advised portfolio business is to withdraw their money. shares of svb plunged about 60% thursday. its top executive is urging clients to stay calm. president biden and european commission lena -- leader ursula bonder lion meet today at the white house. u.s. and europe have clashed over the president's clean technology laws. the leaders expected to agree to let european firms benefit from some of the battery subsidies offered only to u.s. producers. leaders of france and the u.k. will seek a reconciliation in paris today. emmanuel macrone and she sunak

will aim to turn the page on years of bitter relations between their countries. the issues include post brexit ties, immigration and nuclear power. bitcoin having its worst week since november. equity selloff, a u.s. crackdown on crypto combined to hurt investor sentiment. bitcoin fell below $20,000 today for the first time since january. global news powered by more than 2,700 journalists and analysts in over 120 countries. i and lisa mateo and this is bloomberg. ♪

>> is this siv be situation going to crate easing or even more tight lending standards? the problem the market has is not necessarily siv be, it is, where are you going to get the money? the source of increased money to buy things, invest in things, is drying up. jonathan: tony dwyer, not a big fan of this market now. going into payrolls, one hour, 13 minutes away. equity futures slightly softer. down by .1%. yields come in six basis points. 3.84. we have backed away from 4%.

backing away from five. adding to the 20 basis point move we saw yesterday, the estimate for a 30 -- a feeling we needed to 25 may be a .4 print on cpi. but we go 50. everyone is very confused about high -- how high or low the bond market may be for a 50 basis point move for the payroll. if you get one of those midline numbers, what we do with that? tom: let's discuss this. priya was great. if we get 50-50 as she alluded to, that was 100 beeps in six weeks. that is a wow statistic for american banking. jonathan: what kind of data do we need to get to that 50? they are looking for 255,000 today on payrolls. 0.4% month over month on cpi next week. they think that is sufficient.

from an economic perspective, i think a lot of people may share that the a. from a market perspective given the de-risking in the last 24 hours, if the fed decision was tomorrow, they would have a difficult decision. tom: it is off revisions. sarah house made clear she does not see substantial revisions on that 500,000 statistic at wells fargo. lisa: that is one of the biggest issues for jay powell. revisions have been hot. they have had to revise expectations. if they go 50 after what we have seen in the financial sector on the heels of a hot labor market, that would send a pretty daunting and cold message to this market. what it is saying is, the fed put is dead or has been lifted to such a high degree it is not going to save you. jonathan: one goal, get inflation down. svp we have followed all morning, all yesterday, down another 41% this morning. tom: 41% off 60%, something like

36% left over after 48 hours. joining us now, our chief vanke correspondent -- bank correspondent sonali basak. i want to link these three bank stories. you've got a unique bank in san francisco. you've got a unique bank -- silver gate. those two are not banks, maybe he read but, signature is. how many signature banks in new york are there? sonali: signature, the reason you are worried about it at all is because they had shares in the cryptocurrency industry. they have issued updated guidance to calm nerves of the market. all deposits are not created equal. you are sitting here and they are telling you those deposits tied to the crypto industry are

going down. they are not. we have been talking about this for 24 hours. if you are a smaller bank in america, you are worried for a lot of reasons. i think the thing that is more concerning to me is people were not looking at the ripple effects. if the cryptocurrency industry is under pressure, why is it surprising their is under pressure? if the technology community is under pressure, wouldn't silicon valley bank be a derivative of that? silicon valley bank half -- backs half of all venture startups. you are seeing the ripple effects of the bubble popping. what is a hard thing and what investors have not wrapped their head around is what other derivative effects are there? tom: is this an opportunity -- i go to the legacy of mary meeker in morgan stanley, is this an opportunity for them to go in crisis in silicon valley? sonali: silicon valley vanke, the reason we watch it so

closely, it was such a beloved bank. goldman executives time after time have told me they wish they could own it, it was too expensive. the question with silicon valley bank, is this an acquisition target after they have faced these deposit runs already? you have founders throwing caution at this point, not just the company's pulling money. those relationships, the bankers, they have added so many bankers across many banks to build investment banking franchising for silicon alley bank. lisa: you have so many conversations with executives of banks of all sizes. i am curious if you are not hearing demise feelings, but concerns about profitability, how to lend effectively, concerns about deposits. how much is that becoming the predominant conversation in some of those biggest banks? sonali: the deposit conversation

has been an issue since november or december of last year. when i sat at goldman-s conference, the worry of smaller banks started to bank in. as you have been seeing at these other banks, this is a balance sheet problem. the other cautionary tale, a lot of this was set off by silicon valley bank saying they are going to raise money. i think when you are looking to the capital markets, asking investors for anything at this point in time, you have to be careful about what the funds -- the use of funds are, whether it is signaling caution or potential sense of growth getting out of this period. if they smell blood at all, investors will run. lisa: do you care about selling portfolios above less liquid assets? that has a broader market effect. is that something that is more on the table? sonali: it is.

that has happened with a lot of banks. they have been having to sell securities at a loss. this is not just treasuries, these are mortgage backed securities. this comes full circle. you are selling at the wrong time. you have a management question about balance sheet preparation. i would say one more thing. remember, there is so much negative sentiment in the market. act to a conversation i had with a senior executive at goldman who led the big short, they reminded me the money they made into 2008 was not shorting the mortgage market, it was shorting financials. if you look at european financials, the put options rising in a lot of these banks, this is a big sentiment story. will another banker face dire issues in this crisis? jp morgan became jp morgan from what it bought in 2008. you have to wonder whether you

are going to see moments like that again. jonathan: you've framed how important it is to that ecosystem. why are they going out of their way to undermine it? sonali: if you look online, it is interesting. a lot of enter capitalist defending silicon valley bank, the simple -- the behavior of silicon valley bank, somebody that was there for them when nobody else was. there is this same frustration when it comes to signature bank. to your point, there are a lot of venture capitalists out there saying, do these guys have nothing else to do than talk about potential bank runs and should they not be causing such alarm over dinner last night? lisa: maybe they want to cheapen valuations so they can buy it. [laughter] sonali: that has been a concern. jonathan: bizarre. thank you, really complex stuff. really unique issue. all of this going into payrolls,

about 35 minutes away. going to join us shortly from morgan stanley, how high or how low that bond might be for this federal reserve. this testimony, whether it feels more stale in the last couple of days. tom: third day would have done it. jonathan: what would it look like on day three? lisa: i have no clue. leave me a loan. get me a drink. jonathan: it is the last day before the quiet period going into the march 22 fed decision. cpi, march 14. payrolls around the corner. futures a little negative. ♪ it's easy to get lost in investment research. introducing j.p. morgan personal advisors. hey david! connect with an advisor to create your personalized plan. let's find the right investments for your goals. okay, great. j.p. morgan wealth management. and move the energy that our world needs.

♪♪ welcome to a new era of energy.

jonathan: 60 minutes away from a much anticipated payrolls report. like yesterday, things change quickly. s&p down about 0.1%. the mastech is positive by 0.1%. done about zero point -- 3% on the s&p 500 so far this week. the banks have been hammered. verse week for the kbw bank index. going all the way back to spring 2020. it has been a world writer in equities and the bond market. if you look at the two-year yield.

5.08% two days ago, 4.79% today. -- we have -- tom: we have come back in with conversion. i cannot even do the math. i think it is 15 or 16 basis points. not only the level analysis but a rate of change analysis going on. jonathan: twos-tens right now is -96, all the way back from 110, pushing 111 after the adp report a couple days ago. we backed away because the two-year yield has come all the way back in. in other eight basis point move this morning. just an unreal move. off the back of the risk aversion. the belief that chairman powell lowered the bar for 50 and then they raise the bar for 50. tom: the reality is it is not that it is won. we have three banks in the vista end of the weekend. and maybe more we do not know about. jonathan: coal mines will

prevail, all of that good stuff. bramo is going to talk about svp in a moment. fantastic bank analyst says that we want to be clear that we do not believe there is a empty crunch in the banking industry. the headwind is the cost of liquidity is high. we are going to have this conversation all morning and can talk about idiosyncratic issues, existential threats at all of the above. does not mean that what is happening is not worthy of attention. there is a profit problem here. lisa a: the issue is the profit issue. yesterday you saw that when the kbw index. just svp but also jp morgan. get today, they are clawing back losses. as phoebe is not so much, down another 44% after yesterday's 60% drop. we are going to be watching this. not just to see how far the

stock falls but what it means for depositors. also the lack of attention from regulators in terms of taking it over or mediating the situation. speaking of silicon valley and potential casualties, let's talk about olivers, which was the maker of silicon valley use big issue. they just came out with earnings of the sales were lower by 21%. tom: bramo is covering every angle. [laughter] lisa a: also looking at stock projections. the stock of that company has fallen more than 80% since its ipo in 2021. tom: do you have those shoes? lisa a: everyone had them. they're very nondescript so it is sort of like humble money. i think that is the idea. jonathan: stealth wealth. the is like brunello. lisa a: we can discuss all of

that. i am also looking at oracle because they came out with earnings after the bell. shares lower by almost 4.5%. expectations were so high. this speaks to the existential concern around whether we have overpriced cloud adoption and the revenues from that. you are seeing that even though they had decent results, the fact they did not come in with higher estimates is sitting shares lower. tom: amid the banking discussion in this historic jobs day, we find call with ellen zeidner. he published a couple days ago. i am going to guess he published differently this morning. but when she published this morning on the linkage of the fed, the triangle of the fed, to the data that we are going to see? jobs and inflation, and the turmoil in the financial system. ellen: i have been seeing investors in europe, south america, i read back to -- i ride back to new york yesterday.

throughout that trip, investors news of what the fed would do changed every day. almost a meeting to meeting. the bar for the fed to go 50 basis points at the march meeting seemed pretty high. all of a sudden, it is ultra low. i think we are in a turning point. we are talking about credit markets. we are talking about tighter credit conditions and all of these things that do show rate increases are starting to flow through. and impact liquidity and the economy and spending. the fed should wait for all of that. they should stay in this risk-management mode. i think they want to stay in risk management mode. you can get rates as high as you need them to approach it more slowly.

will they get dragged into 50 because the market is pricing slowly of 50 basis points and you do not have the appetite to push against that? my fingers are crossed that the data is -- i cannot call 140 thousand payrolls week. but i pray it is about in line with that in the market comes to its senses. the fed does not want to do 25 here. the bulk of the fed. jonathan: you think they want to pause? ellen: no, i think they want to stay in risk management mode, where safety peak. you go back to 50 basis points in march, on whatever this data looks like, the data may not look much different before the meeting. and what do you do? another for you. jonathan: this is a painful exercise and this is a difficult one for you to answer but forgive me. i have to ask it. what never gets it done today into next week on the 14th?

ellen: i think 250. i think higher than 250 for headline payrolls. i think core cpi, in the components that matter, light core services, dripping, housing, medical where you get a third straight month of no slowing could do it. this is a tricky time for the fed where there is not a lot of chance to communicate with markets if they want to push back. if the market sees the data and the markets are going to price certainty for 50 basis points in march, i do not know that there will be appetite for the fed to push back against that. that is a tough job to do on a tight tight line -- type timeline. the market is saying the world will not fall apart if you do this but if you dig into pieces of market pricing, the market is saying you better go 50. if you go 50, there is going to be a recession. we are seeing that pricing in

parts of the market. lisa a: what is the potential casualty coming from jerome powell signaling a 50 basis point hike? if they do not go 50, does that lead to easing financial conditions, stocks rallying, spreads coming in on credit? all these things they look at as a transition mechanism or one of their policy? ellen: if the market is pricing 50 as uncertainty and the markets of -- the fed surprises the downside, you will get easing financial conditions. we are in this easing environment and the fed is closely following inflation expectations, market-based measures, businesses and other surveys, you run the risk the inflation markets so you are not doing enough again. so they run that risk. that is why i think it is not at the market is leading the fed to do 50 basis points. they are all looking at the same data. the market has moved more quickly than the fed.

the fed will probably not push back and says we are sort of cuspy on whether we can stay 25 or not and goes ahead and delivers 50. lisa a: earlier this year, you were talking about a soft landing scenario. is that changing for you now? ellen: i am still in the soft landing camp. i know it was not a strong view last year but how long can you still have outstanding payrolls and go down the tubes? i am still in the soft landing camp. the soft landing may not feel so good. we are at 4.4% q1 gdp. that is higher than at the end of the year we thought it would be at 3%. subjectively, the odds of recession to go up if the fed will move back into a higher gear and move at a faster pace. tom: going to look at the markets quickly. they are moving. equity markets were sought and have gone farther south suddenly. jonathan: that is a 30 basis

point move on the two-year in the last couple days. by that, i actually mean two days. we topped at 5.08% and are back down to 4.78. tom: we have a headline. saudi arabia restores deal with iran. i do not know if i could link that in. jonathan: i have seen the headline. it is interesting on its own. reports a great open industries. tom: will follow that. i look, ellen, at this job stay from td securities. she is looking at the sequence of being bold. is this an arthur burns fred or are we still measuring? ellen: i know why some of the fomc might not like the idea of moving down to the 25's and staying at study 25's because

then you run into the greenspan criticism that was a measured pace and did not impact financial conditions. i think chairman powell has made it clear he will not be named an arthur burns. he is going to be paul volcker and wants to air on the side of too much. you can air on the side of too much into it in the pace of 25's . that is the safer approach to peak. i very much believe the volcker fomc would like to stick with that. it is just that we are at a turning point where the data is still looking mixed and strong. but other variables and elements of the economy and financial market were following and are showing signs of cracks. do not stop but you do not need to speed to peak quickly here. unfortunately, they sent this message to markets and got markets to accept it is going to be 25's from now on and now that

is called into question. it is rate volatility at the end of the day. in every single meeting, now it is going to be do they go 50, do they go 25 or do they not go? right now, we are watching the totality of the data. everyone has a different definition of what does totality of the data mean. even on headline payroll. if it is a 250 headline payroll but you have participation pick up and players are finding it easier to hire, we just come off faster. that is the totality of the data and makes it harder to discern what the fed would do of that. jonathan: you are diplomatic. it was not just the downshift. he could have stuck with 25's but he just started -- just sounded less and less like volcker. i said earlier that the speech at jackson a host of the test of time and they could have downshifted and gone down to 25. but there was a language shift as well the last couple months that did not stack up.

lisa a: balance of risks and were bounce until it did not. jonathan: essay every month but you are awesome. ellen zentner of morgan stanley, thank you. just amazing to hear you say, i hope we get one more night. 250 is a problem. you do not want to miss the conversation coming up shortly. a rock star of the analyst community on financials, next. lisa m: keeping you up-to-date with news from around the world. with the first word, i am lisa mateo. after a big gain of 517 thousand jobs in january, all eyes on today's employment report. another round of hefty payroll numbers could submit the federal reserve's resolve to hold interest rates higher for longer. economists predict 225,000 jobs were added last month but there are signs fed hikes are taking hold. jobless claims rising to the highest since december.

donald trump is likely to face criminal charges in new york. the former president was told he could appear before a grand jury next week. if you want to testify. that is said to be a sign an indictment could soon follow. the case has to do with the former president's role in playing -- paying hush money to a former point star. volodymyr zelenskyy is accusing russia of deliberately targeting a secure power plant. the latest missile garage knocked out ukraine's power for a six time, as president zelenskyy calls for sanctions to be placed on the russian nuclear industry. global news, 24 hours a day, on-air and on "bloomberg quicktake", powered by more than 2700 different journalists and analysts in over 120 countries. i am lisa mateo, this is bloomberg. ♪

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even smaller banks go through a very rigorous regulatory process. we all know uncertainty creates fear. that is what we saw yesterday. has cooler minds prevail, i think things will stabilize and people will realize this is not a 2008, 2009 or 1990 moment. jonathan: gerard cassidy there. the numbers you want to see this morning. as idb is down 41%. this is silicon valley. it is down 48%, 54.30, off the back of a move we saw yesterday. mike mayo is going to join us shortly from wells fargo. get standout quote from his note is he said sivb is the worst case. the core issue is a lack of funding diversification. most of their deposits are from vc which has is -- its issues.

that is mike mayo of wells fargo. tom: running us right now is mr. mayo, senior equity analyst at wells fargo. i have eight ways to go here. i want to simply say, is this morning the opportunity for the major banks to get competitive ground? do the major banks benefit by all of this turmoil, because financial america will find comfort with big banks? mike: the unintended consequences of everything that has taken place since the global financial crisis is it has increased the moats around the largest banks. the regulation, the reduction of mergers, the too big to fail. all of that simply has reinforced the resiliency of the largest banks. resiliency of the balance sheets, credit risk much less, and the resiliency of the business models, the scalability

you have gotten from technology. also, the resiliency of the funding. even though deposits are declining some, you the deposits are quite sticky into the largest banks. they have all sorts of ways to fund themselves. the issue is out there. you see it in the stock price declines for the largest banks. there are way overdone. the fed stress test is conducted each year and this year, i see it as a combination of the last three recessions combined. until banks can pass that test, they are not allowed to return capital. the issue and the moment is banks have underlying security losses that is already reflected in their financials. even if you assume they never sell these securities, deposits are still 20% higher, relative to what they have been historically. since the global financial crisis, capital is up 50%-100%.

liquidity is up about 50%. the credit profiles are vastly improved. subprime loans are 80% less than where they were before. tom, as you know, i was fortunate to be the first analyst to testify on the causes of the global financial crisis to the congressional committee. as you know, i got fired for that time. tom: that worked out. mike: it worked out in the end but not at the moment. it is almost like the opposite of the global financial crisis when there were not fears and things were about to crumble. now, the fears are way out there when the banks are more resilient than they have been in a generation. jonathan: we can talk about resiliency but we also need to discuss the profit headwinds. the interest margins and how much they have to pay for deposit base at the largest lenders. i want to pick up on something you said.

he said the moats around the biggest banks are huge. what about the smallest banks? have we seen them? can you comment on the lot of scrutiny they have received over the last 10 years? mike: the entire industry has had additional regulation and oversight. those industry statistics" include both the small and large banks. can always have idiosyncratic events. that is going to happen. when morning is the risk -- one warning is the risk outside the banking industry. you have issues with crypto that can have a ricochet effect. you have an issue with d.c. firms not finding as much and eating -- and needing to draw down their funds. that can have a ricochet effect. i think you are seeing more or bigger problems outside the banking industry as so much risk has been pushed outside of banks into nonbanks. lisa a: which of the biggest

banks are most exposed to a devaluation? some of the assets must -- much exposed to those areas. i am thinking of private credit, liquid loans, and some of those industries seeing distress. mike: the truth is, which goes back to the fed stress test, every year the fed is recalibrating the most risky area. the penalty for goldman sachs having private equity investments has gone up and of the last few years. you have big capital behind a law of those types of investments. the entire industry has become much more resilient. you have four categories of loans. one is consumer secured. residential mortgages, you had a crisis in 2007, 2 thousand eight, and that is not happening now. you have unsecured consumer and credit cards and credit cards

are an area to watch. you are seeing issues on the low end. auto loans, low and conserver. on the wholesale sign, you have secured, commercial real estate. then you have the unsecured wholesale or commercial loans. then you have leverage loans which is also an area to watch. having said all that, this is really more of an earnings issue. not a liquidity issue or solvency issue. we had taken our estimates down some banks due to higher funding costs. if anything so far, credit quality can perform stronger for longer than i or many expected which is likely to be good in a good economy. lisa a: we started by talking about how in some ways episodes like this consolidate and control market share among the biggest banks. which among the big banks of as the winner for all of this? especially because that really

determine the winners and losers of the last crisis. mike: you have seen a theme of the life waiting when it comes to capital markets. it is amazing the impact of regulation and the likes of goldman-s. and jp morgan -- of goldman sachs and jp morgan. on the retail side, you have seen the likes of bank of america really leave the way with retail banking, gathering share. jp morgan is also gathered share. when rules come out saying banks do not merge anymore, it is like the jamie dimon protection act. it just increases the moats around that business. i think that is one of the unintended consequences of regulation. it should probably be reconsidered. jonathan: we have to squeeze this in quickly. on the challenges keycorp mentioned earlier this week. is that not a prophet mentored

for some of the big names you went through? mike: funding is going up. the last time i was on the show, i know that lisa asked me where are we getting paid more for our deposit? [laughter] we are getting paid more for deposits now. the additional funding costs for banks could wind up taking 5-10% out of our earnings and vestments when on the other hand, the recession discount is about 30% fact there. if you give up 20% of earnings get the 30% evaluation back, a year from now, you can save the banks performed well overall. jonathan: thank you for getting up early for us. mike mayo of wells fargo. if you consider 7:55 eastern time early, which we do not. i think we should draw a distinction that we have done this morning. this is just an observation not a judgment but it is interesting to see the market with a clear distinction between the big banks and what is happening with svp this morning. stb is down more than 50% this

morning. think of america is down just 0.2%. tom: you nailed it with the key card disclosure. cleveland, ohio 17,000, making 18,000. the downdraft of the super regionals compared to 2008 is a cup of coffee. we need to put in perspective this is not 2008. jonathan: futures right now just about unchanged as the countdown to payrolls, 34 minutes away. just around the corner. ♪ >> from tennis channel. medvedev headlines friday. the 27-year-old heads into the fed major on a red hot streak. taking on andre room left to lift the trophy in dubai last weekend. certainly the man to be in the desert. you can watch all the action

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people call in, when irene called in and she said that none of the rich people pay any taxes. we all know that is not true. the top 1% of people paid the majority of the taxes. the bottom 50% pay no taxes. i was just wondering when somebody says something like that, could you or whatever host, could they be corrected on that? there is a lot of false information being spewed on this channel every day whether it's an for the ecb and at looks like more symmetric. >> we expect to see job growth,

we expect to see some moderation from the industry hike. >> we know where it's going it's noisy. >> the economy has changed >> structurally. things are different than they were in 2020. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone. on the oddest of days it is a job stay we will bring that to you in 30 minutes. it is some form of run -- on the financial system. the best we can do this in this moment give you the markets and, john, you talked up the two year yield right now down to inuvo's and almost breaking through where we were at midnight. jonathan: the highest since 2007 5.08 that was two days ago. we are down to 475 after a 20

basis point move yesterday what you heard, 15, 20 minutes ago on this program is remarkable. looking for 190,000 on payroll. and hoping it's not larger. the jobs report is not bigger because she's worried the fed gets tracked back in to doing 50 basis points. tom: nadia levels going to join us but we need to gather perspective here over what we've learned over the last 5, 6, 7 hours. to me, the thing is german powell into this challenge we face right now. jonathan: never mind getting drawn into 50. let's say the data screams 50 may or may not get it hot print next week on cpi let's say it screams 50, at the same time you

have some of these banking issues if it's a small institution on the west coast, whatever, there's no way that committee wants to sit around the table and talk about hiking basis points by 50. one of the big tests for federal reserve that hasn't been that sensitive to the market spot they seem to shrug off trying to manipulate markets and saying we're going to look at the data and they haven't necessarily responded in this case, are they also going to shrug off some of the signs that we were hearing about from ellen zentner and save the date is hot were going to go 50? tom: 5050, looking for the first time at 6.50% she's on air and george sarah bellus at deutsche bank is talking to take the two-year to a lower yield, higher price. that's not the jumble.

jonathan: what is restrictive for the economy and what is sufficiently restrictive for the market? that can be two different things sometimes. talk about getting to six. we were at zero 12 months ago. we often forget that. we were at zero 12 months ago and the fed was still winding down. all of a sudden were talking six. tom: what did spreads do yesterday? lisa: that's where i wanted to go we did see some spread widening. this isn't anything, it's not crisis. here's my question, we've seen really anemic trading volumes we have not seen true price discovery at all for private and nontraded items. at what point do we start to see price discovery and does it

change the narrative in a new way? whoever said warren buffett is a person who is credited with it when the titles that you see who's naked. tom: i'm going to go to the financials index which was accommodating. you mentioned it's over. we moved from eight positive standard deviation to a -.01. i'm going to use the term massively restrictive. jonathan: driven by the front end of the curve just this massive comeback continues this morning on a 10 year maturity down seven basis points. on top of the 20 basis point move from yesterday remarkable stuff, tom. lisa mentioned the quote from warren buffett i love this kind of quotes. there's a line that comes from the character if your first out the door does not called

panicking. lisa: that's great. tom: that's a golden retriever thing. i've seen youtube stuff i've never seen the movie. jonathan: it's fantastic. tom: jeremy irons with his hands, he absolutely nailed what we do. his hands in those board meetings is exactly what it's like. jonathan: never seen it before. tom: right now saving the day not il levels joins us. you and your team have to write what we just discussed. how does your research not change as you publish for monday? >> we're not changing much because i would tell you, tom, we've been seeing times that the market has been traded when interest rates really matter and while it takes time for you to see the broader impact there will be impact and we are certain to see that. the housing market with higher

mortgage rates, we are seeing implications for the financials market as well. i'm, we've been looking at the senior loan officer survey, we've seen one additional tightening and we think it's going to tighten further. we know credit is the lifeblood of this economy. we think the snowball, the headwinds have been building and while the fact that we saw some of this kept at bay we think the storms are brewing so when we look into the back half of the year we continue to think that the risk to the downside, just a few weeks ago we further lowered our s&p 500 target for year end two 3800. jonathan: we've had people come on all morning to say is the opportunity to buy the big's, do you disagree? >> we downgraded financials in december. what you see playing out right

now was something we were concerned about. we were worried about that deposit cost we are still in the early innings of the competition. reality is no one is immune so we think this will continue to have implications for profits and margins that go in this environment today's issue might be deposit and outflow but tomorrow it might be charge. the normalization process is happening and we can see and acceleration in that if we see the deterioration and if we see a pickup in the unemployment rate. lisa: just spilled jill not -- just to build on that mike mayo was talking about concern on consolidating market share power among the bigger names there could be a decline in profitability but they can overcome that and compensate for that with more business.

does that resonate with you? are you starting to look at some of the strongest bank names for when perhaps there's a bit more pain and then you can take an opportunity to buy them? >> you saw about it in the financial crisis in over not saying it's the talk of the banks but we do think that the larger banks are likely to get larger or pickup some market share. you want to be in those quality banks if you're not going to on banks but, yes, get your shopping list ready. we don't think that the downside is over yet but maybe the back half of the year and into 2024 you want to look at those more quality banks that have more sticky deposit base and also our diversified business. jonathan: none of us have a crystal ball we don't know what the jobs report is going to be. they know, we don't know. what i want to understand from you is how to respond to the incoming information. can you tell me how low you think the bar is for a 50 basis

point move? what kind of number gets it done? >> if we see something that is about 300,000, that it does increase the possibility of 50 basis points. chairman powell gave us the roadmap this week of what would tip the scale for a 50 basis point. we already have a hot jobs opening number we will also be watching closely for cpi reports if we get something above 300,000 and you get the earnings that are about maybe half a percentage point that 50 basis points is more likely. as you noted all morning i cannot believe that what's happening in the bank will not give the fed pause in this market. we are looking for a term an echo of 5.5%. jonathan: wonderful as always. 250 might get it done. that was a number of about

300,000 citi is down to 250 five. somewhere in between 250000 and we hundred k should be the ballpark figure a lot of people think will leave. tom: nc math about the standard error, it's out the window. gone after what we witnessed last month. lisa: everyone is saying something different. every person comes on with some measure of condition. no, no, the fed should really go 25 they're not going to go 50. they're going to have some real issues because of the banking crisis. tom: you have a huge audience, think you so much for watching us. you're just curious about this. their heads are spinning right now over all these events. thomas is on twitter with a kind between two us and it's british. he talks about our cheeky humor.

what is cheeky humor? jonathan: a little bit naughty. tom: oh really? jonathan: just the right amount. baron mind it is 1:00 p.m. in london. tom: i did not know this. they are drinking in london? do they have pups there? soccer at than they -- jonathan: it's a big event in the city. they are in pubs across the city of london. tom: with lisa's cheeky humor. jonathan: payroll report 20 minutes away. now of the university of chicago , coming up next. >> keeping you up-to-date with news from around the world with first word, i'm lisa mateo. less than 20 minutes from now the february jobs report will be released and it's likely to help determine what that wallace e makers will do when they meet later this month.

it's estimated the economy added 225 jobs last month around that hefty payroll numbers could solve the fed's resolve. shares of silicon valley bank have resumed their punch losing almost half their value in premarket trading that's following yesterday's decline. svb is a major lender to startups. advised portfolio businesses to withdraw their money. president biden and european commission later are trying to avoid a fight over trade. they meet today at the white house the u.s. and europe have clashed over the president's clean technology law the two leaders are expected to agree to let the european firms benefit from some of the subsidies offered only to u.s. producers. and bitcoin is having its worst week since november. an equity selloff over higher interest rates and a crackdown

on crypto combined to hurt investor sentiment. bitcoin fell a little to thousand dollars for the first time since january. global news 24 hours a day on air and on quicktake. powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo and this is bloomberg. ♪ conventional thinking delivers conventional results. at allspring, we break away with purpose. harnessing data-driven insights and boundless curiosity. we dissect the market from every angle. helping to build portfolios that redefine what's possible.

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from a liability to an asset and that's the ultimate measure of success from my perspective is that's the business value driver that all our clients are looking for. ♪♪ >> to go back and justify that we step down 7550, 25 back up to 50 it kind of puts you in a place that you need to go back in me they are concerned on the

inflation side and that they're not making enough progress on the labor site but i'm not sure that the noise that we've seen in the data in january justifies reacting to the february data we almost have to get to the march data to see what the real trend is. jonathan: a little more data coming up in about 14 minutes time. we are looking for something close to 225. we break that down for you in just a moment but this is what we are looking at right here, right now. svb is down hard again right now it's down 67% in the premarket we talked a lot about that distinction being drawn between some of these small vendors and the large cap, big inks, big integrated players down 1.5% today so a clear line has been drawn here. first republic, a bank you know well was down hard yesterday by about 16%. it's done another 12% right now. tom: need to be careful about

the names. this is first republic bank/ca, california. this is not the east coast you know how many first, we already have 51st republic bank's that i think of but you, yes, this is tarred and feathered by the california experience. it sums up to a set of banks, some directly in trouble and others may be less challenged. jonathan: food for thought. tom: in this historic moment we are thrilled to bring randall croson are truly one of our experts on the financial dynamics of our system this has to be a different interview today i really don't care what you think about on fund payrolls what i do want you to help our audience with worldwide, is out of the federal reserve act of 1913 there is a true dual

mandate the monetary and financial system. explain how chairman powell goes between the monetary challenges of the moment and what we've observed in the last few days, the financial challenges of the moment. >> i'm really glad you drew the distinction. sometimes people model the two, the two pieces and if he think back to what happened in february and march of 2020 the fed started buying a lot of assets because it was dysfunction in that market. it then decided to do quantitative easing but the initial response was really separate from the financial response. separate from the long-term monetary response. the fed is going to try to avoid financial tumult and try to make sure that markets work appropriately but it's also

going to be worried about bringing inflation down. jonathan: what do they do this morning to provide comfort to the troubled and less trouble thinking system? what is the action the fed will take say over the weekend and into next week? >> obviously, the fed monitors all the stuff very closely and they have good data on the flows and capital. i'm sure the fed is totally on top of this and what was going on even before it was reported in those earnings reports and public reports. they are making sure that banks have access to lending that central banking drew directly to banking services trust if there is dysfunction in the market there's assets in those markets and do that just like that as we did back when i was at the fed during the global financial crisis and as they did very expeditiously when covid hit so

i'm sure they got all the pieces in place they know who was vulnerable and will be there in support if there's a problem. hopefully there won't be at least right now there seems to be fairly -- it seems to be fairly isolated. lisa: do you think jay powell is doing a good job of communication? >> i think he's been incredibly consistent. you heard on your program for like eights months now he's had a good consistent message since july the markets have not been willing to listen. as i described, part of that is because there's so many younger participants in the markets. people that haven't been there for 20 or 30 years like i have. to know that the fed at some point will take the punch bowl away when the party really gets going. they're going to keep at it and it seems like the markets are always surprised when jay powell reiterates were going to keep at this when we bring inflation

down and if inflation is not coming down were going to keep at it. he basically said the same message the market got really jittery about that. i think it's been very consistent. lisa: we have heard a slight shift in tone have we not? they're becoming more balanced, less sort of weighted to fighting inflation. i'm curious from your vantage point whether your sense of what it means to take away the punch bowl has changed with potentially higher terminal rate in your imagination that you previously thought. >> we talked before that they would end in the mid-fives and i think roughly, that's where they are to be jay has not set a particular number because it depends on the data. the jobs market was a lot hotter last month than anyone expected. that's what this number is so highly anticipated. we also have a number that's in gradually coming down. last month's index ticked up

just a little bit. jay has always made it clear he's going to be responding to the data, he's going to be looking at what's going on nothing is preset. if the job market is still at the three -- 53 year record low and inflation is not coming down they're going to keep working at it. i think i said this before on your program until the labor market quits, they're not going to quit. jonathan: going to stick with us ahead of the payroll report. i'm almost laughing. lisa: i know you are. jonathan: that is such the establishment view. i get it you can say whatever you like in two minutes time. just a he's being consistent is ridiculous and to say it's the markets fall because the market doesn't understand the fed is equally as ridiculous. it is a fed's problem if the market is not hearing the message they want to hear. you can talk about balance risk,

you can't talk about the disinflationary process, you can talk about adjusting the pace and not expect volatility to come around it's a ridiculous conversation. lisa: there is, i mean look maybe you can weigh in on this. that is sort of the question. do you create this balance of risks and stick with it until you zero pain rather than wait to sort of change the rhetoric in the face of something that is hopefully -- jonathan: the floor is yours. >> you should treat traders like they are golden retriever's. maybe talk to them. that may be what the fed needs to do but lisa has a point. this has been a very volatile, economic data couple of months. it is kind of hard to remain consistent that the view has

remained consistent. the language has maybe not and that has may be some problems. the fed doesn't have to move until march 22. so this is really a problem for the markets because they're the ones that want to try to figure out what's going on on a day-to-day basis. jonathan: i did invoke you by name almost so you should have the right to respond. you have about 45 seconds if that's enough time. >> sure. i understand your point of view. it's along the lines of what mike was saying. i think his approach has been very consistent. they're going to keep at it until inflation comes down. we've had a lot of variable reports. i think the expectation was it was start to move up a little bit. the jobs market would weaken. it hasn't. the rate has come down consistently with the fed's forecast. it ticked up a little bit but i think the general message has been quite consistent that if

the data are not consistent with the inflation rate coming down, they're going to keep at it. that's why i'm surprised that the markets are so surprised at that because i think he's been consistent with the big picture message. the data have been quite variable. jonathan: randy, you're going to stick with us. it's about four or five minutes away. tom: it is the most restrictive it's been since the late 1970's. jonathan: equity futures right now down a quarter of 1% yield to lower on the front and -- and by a basis point. jobs report in america, up next. ♪ and at chevron, we're working to help reduce the carbon intensity of the fuels that keep things moving. today, we're producing renewable diesel that can be used in existing diesel tanks. and we're committed to increasing our renewable fuels prodtion.

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>> 20 seconds away from a much-anticipated jobs report. the month of february confirmed the boot. we are looking for a number in and around 225. bond yields are lower, much lower going into this. don seven basis points on a two-year to 480 with the job state of that's get onto michael mckee. >> here we go and it is stronger than expected here is johnny as it were. we're going to lead to 50 i guess because it's 311. 311,000, the jobs created in the

month of february according to the bureau of labor statistics. that is, i'm looking, i'm not seeing the revision immediately here that the change, the net revision is down 34. so we did get a revision to january and i can pull that number up for you quickly here. december revised up by 20,000, 21,000. the change for january revised down by 13,000. so not a major change their but we do have a much stronger than expected payrolls number. the unemployment rate does bump up to 3.6%. that was unexpected. there was no change priced into the forecast. average hourly earnings fall. so they fall from 3/10 rise from the month before that puts us at 4.6% you have to calculate base effects and there but that is smaller than anticipated the

labor force participation rate comes in at 60 25 so that an increase from 62.4 the month before. one more thing we have here the average weekly hours fall from 34 seven so you've got some signs of slowing in here and you got some signs of increased. i'll let you see what the signs in the bond market are. and i will get you some numbers. jonathan: this is super difficult to read so i think for the moment were not trending on the headline number, we are training on a softer print. increase in participation a reduction worked as well and we have a big rally in the bond market so yesterday the to your yield was done 20 basis points. it's done another 18. think about where we'd be this week. 5.08% two days ago and right now 4.69 that is a big change.

equities higher by about a third of 1% on the s&p as i was saying, the first move not always the right move but that's the early interpretation. tom: no question about that i'm just going to say as i look at the green and the red on the terminal it's simple. this is a disinflationary pause and it sets us up for what if we see on tuesday some form of disinflationary trend? lisa: i reject any interpretation of this initial read. i completely reject it. i mean, -- [laughter] looking at this it makes no sense. percent in person they're going to be forced to go 50 basis points if you get above the 250 number. we got 311. all levels, this is a very strong labor market that gets revised on the upside so, yes, the fed can say whatever they want but the bottom line is

based on what jay powell has laid out for himself it's going to be hard. >> when you look at the jobs that were created construction jobs were on the month up by 24,000, a bit of a surprise. but manufacturing jobs down which is the first loss in a while and it's also a suggestion the people who had higher-paying jobs were struck from payrolls. leisure and hospitality is the biggest job gainer 105,000 and that suggests that were still trying to fill jobs that were open but they are lower paying jobs. so may be were not seeing as much wage pressure as we have seen my initial reaction when i saw the number was here we get the no landing coming back again. tom: >> >> that's your interpretation? i'm going to be with lisa on this it's a little hard to interpret and i don't want to give you a quick answer that i

expect people will say me be you don't have to have a hard landing and we can bring inflation down. tom: it's real simple, there's over one million jobs in the last 90 days. the moving average with revisions is 351,000 there was a point where randall cross arec --rosner ripped the chalk out of my hand. we are miles away from a normal job. jonathan: it's difficult to stay open-minded after the jobs report. sometimes the first move is not the right move but i will keep stressing that the early interpretation of the incoming information so far. in line with what people separately to the 50 basis point but the attention is firmly in the lift and unemployment. a reduction in disappointed in which growth. equities are higher, i'll keep

saying for now until i got home. i'll keep saying that because i have no idea. then the bond market yields are aggressively lower by about 17 or 18 basis points. about 40 basis points south of where we were a few days ago. it's this together with next week, the 14th, the cpi print still to come. tom: mike, do you have any jewels you want to share with this quickly? >> i want to point out we did see a big rise in unemployment in the household survey 5,000,936 that's an increase of 242,000 the level changed for employment an increase of 177,000. more people report losing jobs, almost no change in the labor force 419,000, but that's down from the month before.

tom: silicon valley bank trade-off report. if the headline says trading halted with new spending. mike mckee will continue to digest this to the 9:00 hour. seriously. jonathan: rick rieder. will catch up with tiffany. tom: he is buried in snow drifts. jonathan: we will catch up with the labor secretary as well. tom: this is his final interview? jonathan: it's his final interview. tom: be nice. >> were having a hard time deciding with the fed is going to do. the 50 basis point move is bouncing around right now. 53%. jonathan: can i say this before i run? if you get a hot cpi print on march 14, everything gets deemphasized. the stiffer trading on now will

get completely engulfed. if you get a hotter cpi print next week. tom: agreed. what is a modest disinflationary vector me on tuesday? jonathan: that would be super encouraging to get a bit of wage growth. that would give the fed an excuse to back away from the 50 talk for sure. tom: we continue as we talked to the former governor before we spoke about the financial side on our monetary system randy, can you use theory? can you use anything that was invented years ago or at london school of economics? the theories that matter are they valid and beneficial at this time? >> even someone from university of chicago. i think it gives us a broad framework for thinking through these issues. these data not clear and as we

were talking about before the data had been quite volatile and this report is not consistent. what mike may have hit on is one of the issues if you're growing a lot of jobs in the lower wage but losing them in the higher wage part like manufacturing, that can lead to that number coming down that average hourly wage but wages may still be going up because in each of those categories, it may be going up so we have to get more data on that. tom: speak to the chicago theory, lisa has been beating me to death with long and variable lags does that meth work now? is it useful? >> i think were still saying that. we certainly have seen some l

ags but not on all the sectors. we'll see when the tightening of monetary policy really hits. it may not come for a few more months. lisa: we are seeing people back away from the likelihood of a 50 basis point rate hike later this month. do you think it's valid given the strength of the labor market given the lack of significant downside revision to what we saw in january? >> still have a very strong labor market. there's no way around that and especially at this point. after the fed point has an hiking for a full year those lags have been long and variable but it would be surprising to see so little impact. i don't believe the fed is me their decision. as john said as well as tom, the inflation report is going to be very important because this is a key input into what inflation is going to be.

that's what the fed cares about. if we see inflation starting to come down some around the table may fill more comfortable to save but stick with 25 but if they don't see signs of it coming down and you still have the labor market pretty -- being pretty hot people would want to put for 50. lisa: the knee-jerk reaction seems to emphasize the decline in average hourly earnings and the tick up in the unemployment rate as why, perhaps, the fed wouldn't have to go quite as far as previously believed do you think these are significant things that highlight softening around the edges that will show up later on? >> as i was saying the reduction in the average hourly earnings may have a composition affect so i think it's hard to interpret that anyone report and too much detail and really say if it is going to change because of it. i think looking over the last

three months we still see a very strong labor market. the context in which jay powell 's testimony. i think the labor market is still pretty strong. it doesn't seem to be strengthening but if it were than i think it would be very clear it would have to be 50. i think it's reasonable the market states it then but a lot of it will determine on the inflation number. tom: think you so much for joining us today. also with the university of chicago. we turn to bond market reaction. he's aged overnight, jeffrey rosenberg the portfolio manager open question, it's the multi-strategy right >> now? >>the multi-strategy is defensive here. there's a lot of focus on 25 versus 50 but i think the real message of the week was that powell deemphasized financial conditions, they need to stay

tight for transmission of monetary policy to work. the thing that we lost sight of here is how was monetary policy supposed to actually bring don't inflation? it functions mainly through financial conditions tightening and when you look at where we were at the end of january financial conditions or basically back to where they were before the tightening even begin, effectively unwinding all of the tightening in policy so the pushback here is coming from the data. you know, we can parse today's payroll report. aag is the worst measure for near-term measures of wage growth because of the compositional effects. beyond the noise of the data, the issue is financial conditions are not tightening enough and powell pushback this week. that means it raises the prospect that they have to do more. that's the 50/25 debate but it

really is the terminal debate that is important here. they are much more willing to push the risk up. tom: you're going to take in the various name -- narratives. it is hugely propolis tickly determined. can you state that we are in a disinflationary trend now? what is the probability that the victor coming off of this report and coming off tuesday will signal disinflation? >> i think what we have is finally the realization of peak inflation. remember, that was the peak debate for a while the expectation that we hit peak inflation, inflation would come down and i just get getting disappointed. us november we hit the peak inflation and everybody got very excited by three in a row, three months and a row of very good inflation numbers that showed a

decline but declined to what level? the fed is talking about getting back to the pre-covid 2% and nothing in the data were saying -- seeing in terms of the persistent measures of inflation which is the core services, housing services which is really about the labor market and wage inflation. nothing has really said that the fed is tightening to date has done the work that's necessary to bring that back to 2% target. to have that be accomplished. lisa: you were talking about the financial market conditions and that's really important for the transmission of fed policy. looking now at the terminal rate being priced in, 5.3%. down from 5.6% earlier this week. do you think this is an accurate response to the report we just got? >> i think the market is being whipsawed around a lot. you have to be careful about

over interpreting kind of the longer run fundamental interpretation from today's news. as john was saying earlier, come tuesday with the hot cpi report, all of this is going to get thrown out and reinterpreted. i think the broader message of the raising of the terminal rate is the right response to when powell said earlier this week that we need to do more. that's really the broader message of the failure of the core measures, the labor market measures, the core housing service manages. really respond to what is a significant amount of tightening today. it's higher for longer and you have to price out the expectation that the fed is going to turn around very quickly and be able to cut interest rates as well. lisa: my head is spinning, jeff, i have to be honest. everyone has a base expectation. completely accurate. i'm looking at this, is there

any certainty in your investment thesis that you continue to drive home that you continue to have conviction in? >> you're going to hate this answer. the only certainty is the uncertainty. tom: he learn that from alan nelson. [laughter] >> in you weren't going to like that one. it's about recognizing that there is a lack of ability in forecasting inflation that's really the issue here is that the market consensus is pretty confident and it was pretty confident in a steady return to 2%. the history of the accuracy of forecasting inflationary it does doesn't bear out the degree of confidence. it's about recognizing what we know and what we don't know. relative to what's priced in the market. >> that downside has been playing out the first part of march or. tom: jeff rosen -- rosenberg.

21.7 79 off the angst yesterday. michael mckee quickly and observation of 47 pages. >> number of retail jobs increased by 50,000. most of those at department stores so that gives you some indication that perhaps retail sales have not pulled back or did not pull back a lot in february. retail employees got the biggest raises, up 1.1%. we talked about leisure and hospitality they were up three tents of a percent. manufacturing was flats of holds that we hired people in lobar wage occupations and not in higher wage occupations. the other observation i would make is we have now dropped to 834% chance of a 50 basis point move in the market.

while people price that out. tom: let's continue with ira jersey he has been known for years on wall street for short-term analysis. what's important here, go out and find percent he is the -- from perm -- bloomberg intelligence. do you see a disinflationary trend in place even if it's ever so shallow? >> there is. we had that one little blip and a lot of the data in january which gives us a lot of pause but we have to keep in mind it isn't only one data point and we have to look at all the other data in totality. today's data i don't think it moves the needle that much for the fed. maybe they go 25, but we still don't know where the terminal rate is going to be. if the data doesn't slow down, then we still see some

inflationary pressures. the fed is going to hike or than we thought. tom: you're not on the trading desk. you used to be. is there opportunity in these gyrations and spread and also just simply nominal levels? >> there is an trading desks usually like volatility as long as it's predictable volatility. i can think of -- we came in this morning and so that the treasury market had played a lot with two-year yields better by 15 basis points you know, that's an environment where if you're a traitor, and you have a position overnight your loving at hating it. in today's numbers this morning, we saw some volatility around the knee-jerk reaction but i'm sure there is some training opportunity. people will take advantage of that in the very short-term. investors on the other hand, three months to a year for example which is kind of the

sweet spot for where i try to look. that is a little bit, as let's obvious what this means her with this one data point is going to mean for that longer-term. lisa: let's stick to the eat -- immediate reaction for a moment. if i knew the print ahead of time i still would've lost money because that is how the trading activity was to some who were just looking at the headline number and what everybody was saying ahead of it what the bar would be to raise the 50 basis points. i'm curious, all things being equal, the report we just got does it raise the terminal rate that you expect the fed to get to? >> it doesn't. it actually probably lowers it or decreases the chance of a 6% terminal rate at this point. and not so much because of the headline, which is a solid number for sure but when you look at the totality of the

data, you have to remember the knee-jerk reaction is often the line on the bloomberg terminal and then when you look at the wage data, you look at the hours worked data and the household survey and realize there were 242,000 more employed people this year or in february then there were the month before. when you look at the test holiday of the data, it is much more mixed and that is why you have this big knee-jerk reaction and things settle down to where we were prior to the report. tom: ira jersey, jeff rosen burke back to back speaks lots to our booking team. here's how crazy it is and i usually don't admit this. it's so crazy right now, folks that often i look at the top of a research note to see when it was written. and when it was released that's how quickly it is occurring. i do this with eric harrison

linking into economics ed, i cheated i looked at your brilliant note and you wrote it a good number of hours ago. this jobs report confirms your idea that we won't be so abrupt. >> i think the 311 number, i agree with ira it doesn't tell the full story. the real story is that we know there are a lot of jobs that were being lost. we know from bloomberg economics it takes 60-90 days before those people start filing for claims. we are kind of seeing that from the household survey with the 3.6% unemployment we are seeing at the same time more people in between the labor force which should help keep wage pressure down. all of that suggests that the fed had wanted to go -555 at the

most and i think this is in line with that. tom: david blanchflower has been world acclaimed for questioning labor statistics. he things it's a much more fragile labor economy is that what your work shows that bloomberg? >> you know, i think the economy is relatively high. i'm probably not on danny's page there. i also know that he has been very negative on the rate increases. purely from a financial stability perspective you can say that the rate increases make sense. one of the key factors is this spp it's telling the fed that long and variable exists. what's happening withsvb is related to what the fed did

three months ago, six months ago. the contagion from that so that's going to give them pause. and only 25 versus 50 but what the terminal rate is going to be. it's a speaking to a labor market that's still very good but a fed that thinks it could be decelerating. tom: it's called the premo halt. lisa: i am wondering about the room for nuance at a time when otherwise hot labor market prints. we are parsing through the details of the report because of the long and variable lacks. not necessarily january but otherwise, for a number of months do you think there is enough room for nuance at a time when this market has remained or this or economy has remained

more resilient than the fed expected. >> i think the reason we have nuance, particularly, the fed stepped down 25 basis points. the reason they did that is because they thought they were nearing the end. the data that we got in january which was at some people think and operation work causing them to rethink, the market rethought the data more than the fed rethought it. the fed likely is and will have to see with the cpi data says but my view is the fed wants to make it 25 basis point hikes at the most and then they want to hold and that's it. that's the path they want to be on. lisa: just as we get some of this banking news also first capital as well as science bank from your vantage point, with respect to not necessarily credit markets but private

credit markets is there a concern there? is there going to be forced sales that put pressure on valuations? >> i think this is a problem that svb is bringing up. what we know is that the occupancy rate for see nds in particular are lower and we've already seen they hanging in the keys -- handing in the keys from tenants that decided not to pay their mortgage. this is the sort of thing that is going to be a problem just for banks but for the wider financial community. this is the place were people were trying to pick up guilds and i think it could be a problem over the next two or three years. tom: edward harrison, think you much. linking markets into our economics. lisa, i don't know where to begin. i'm going to go with mike mayo earlier today on banking and

something he said in a quick of a sentence he is doing what i'm doing. watching commercial real estate outfront. you have a massive focus on this with a fixed income but it's like the furtive lies -- butterflies and what to they mean flapping for baking on the east coast? that's the arch debate. given this role of everything were in right now what the tea leaf he should -- i should be watching? lisa: a lot of people have been watching commercial real estate. i think this is a big concern considering not just property values paid into mortgage rates but a shift to working from home and what the readthrough could look like. that said, i think you raise a great point. what kinds of financial readthrough's have we not seen yet that might give the fed the opportunity to take advantage of the market response to this

report with the right, whether wrong the markets response as an excuse to go just 25 basis points. tom: edward harrison was really good on this. with gdp coming down we didn't even mention it today. we didn't get a brent crude of 709i have it down 82.04 and eight i --t made a dash it seems to be better i'm wondering here the gdp calls we may see off the inflation report. lisa: i'm so confused. i'll be honest. i'm trying to put this together i'm not going to try. i think what we're seeing right now is a hot labor market. we are seeing signs of softening. we are seeing real moving, really serious science that there are pockets of distress that are forming. tom: it's ok to be confused here. i can't confuse -- convey that

enough. stay with us today on bloomberg television and bloomberg radio, good morning. ♪ >> live from new york city this morning. good morning the futures are positive. the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading. this is bloomberg the open with jonathan ferro. >> live from new york coming up payroll stats in america coming in hot leaving a door open to a 50 basis rate hike.

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