Instant Reaction: US Adds 162,000 Jobs, Topping All Estimates

0:00If you invest, lead a business, or allocate capital, one-sided views aren't enough. Join me, Brad Rogoff, the Global Head of Research at Barclays, on the Flipside podcast. Each month, I go head-to-head with one of our expert analysts on my global team to debate the economic and market issues that matter most. From inflation and AI to equity and credit trends, each debate helps you see what headlines might miss. Find the Flipside wherever you get your podcasts. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work.

0:46It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans. If you listen to financial news, you know a lot of time is spent thinking about what's next. The next opportunity. The next investment. The next move. But sometimes what matters most is being ready for what you never saw coming.

1:25For more than 75 years, Cincinnati Insurance has worked with independent agents to help protect businesses, homes, valuables, and more. Because planning for the future isn't only about knowing what's next. It's about making sure you're ready for what you can't predict. Let Cincinnati Insurance make your bad day better. Find an independent agent at CINFIN.com. Bloomberg Audio Studios. Podcasts. Radio. News. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. And with your breaking news on the payrolls numbers for August, The two-month payroll net revision data adds 55 ,000 jobs to the United States.

2:19Non-farm payrolls rising, therefore, month on month by 162 ,000. That is a, well, three times the estimate, 55 ,000. The unemployment rate, though, stays the same, 4.1%. The estimate had been for that to stay on hold. And indeed, that's where we are. So S &P 500 e-mini futures this morning turn negative. They're down by two-tenths of 1%. So this in breaking news, Treasuries tumbling after August job creation. Tops estimates. Remember, no markets will be trading on Monday. So important to understand the ramifications. That is your breaking news. The U.S. August non-farm payrolls data. Tom Damien, what do you make of it?

3:07What I think of is you did a very good job. You've never done the U.S. jobs report before, have you? Not live and not out of New York. Let me do the market. Thank you, Caroline Hepker, so much. This is a wow report with wow market move. Equities move south as well. We don't have a VIX number yet. But in the yield space, we have a seismic move. Damien, I looked at the 10-year route to 4.80%. Yep. And it's just simply price down and yield up. I mean, it's the revision, right? I mean, we went from down 23 ,000 last month to up 21 ,000, and now we're up 162. Tom, you asked for it. You get it. 100 ,000 plus in non-farm payroll ads.

3:47I mean, and like, look, you have some average hourly earnings data, the month-over-month acceleration of 0.3%. So, you know, and the labor force participation rate, as we point out, higher. So coming off the lows. The flu, I'm not using my HP-12C, but my quick math is 217 ,000 positive on the non-farm payroll, plus the two-month payroll revision as well. Shortened duration here. I mean, you don't want to be long the long end, I guess. I mean, the steepener should be working, one would think. I mean, we're going to ask Amy Wu Silverman all about that. We'll get that. Right now, Dr. Sam with us as she digests some of the early data as well.

4:23Claudia, a fascinating report. Court, is there any value here to three-month moving averages now? Or is it such a cacophony that's not valuable? There's always value to the three-month moving average. I mean, I think, you know, that going to this, trying to smooth this out, not get too hung up on a month-to-month. And honestly, you know, we have seen for many months a lot of, like, kind of bouncing around a negative trend to a positive trend. And again, that's because the break-even is not that far from zero. So like we're going to keep having this above and below zero. I think this is where we're to state.

4:59But I will also say that, you know, this having the upside surprise this month after a downside surprise last month, this isn't just random noise. There was a really important piece of, you know, the K through 12 teachers and staff that shows up in state and local government education. That was a big decline last month. It also was part of the revisions and it reversed this month. And it is just an area that has a very strong seasonal. You know, so I think there's some there's a story to the noise. I don't want to just look at this data and be like, wow, this is our. Our Fed presidents and governors, Dr.

5:32Sam, are they as confused as Puffy the cat? He's pretty sharp. You know, I think what the what I think the Fed will, you know, it's kind of a headline pull out of this. I mean, payrolls have been difficult to read for some time because we've got so many shifts in the labor supply, that they've really kind of downweighted that in terms of a strong cyclical signal. The one that they still look a lot to, the unemployment rate and wow, I mean, that thing is really stable, has been low and stable. And that is for them at least a really important signal of like, do they need to, or is there something here for them to step in and a problem?

6:09And it's very, very low and stable. So I think that, and that's probably where their attention will continue to focus and the payrolls are going to just be something to dig into the details, understand it, and look at the trends, maybe even more than a three-month smooth on that, like really just kind of smooth out this bouncy noise. Dr. Sam, the U.S. Treasury yield curve is flattening pretty aggressively here. I guess that means that markets are starting to price in a higher probability of a hike here in September, no? So I think we are going to go into the September meeting with really a coin flip.

6:39And I think that comes down to for the Fed. They have some really tough decisions to make. Like in the messaging from Fed officials, I really haven't heard anybody pointing to the labor market as something that is decisive. And what do they do next? It's really trying to interpret where inflation is and where it's headed. I think the labor market in today's report showing the strength in payrolls. This is just not the downside risk just aren't there in the kind of the Fed sense of like what they should do, you know, in a couple of weeks. So but but, you know, it's it's going to be a tough call for them.

7:13It really is. You get a two-year yield, seven basis points higher yield, a 4.41 % on the two-year yield. Is this report Waller-friendly? Again, Waller yesterday was not, you know, paying much attention to the labor market. I mean, again, it's consistent with Waller. It's consistent with what Moore said about the labor market. Labor market is stable. Stop, stop. What do you think this is, Labor Day and I'm a third Jenny Kremel? It can't be consistent for both of them. Who's this report for? Waller or Washington?

7:50This, I think, you know, the report we got from the labor market, I think the market is pricing this right. This goes in the favor of the Fed officials who think it's time to start hiking. Because, you know, a risk of doing the rate hikes to bring inflation down is you take away jobs that you didn't have to take away because inflation was going to get better. If the labor market looks pretty solid, then OK, like maybe maybe we'll work on the inflation piece. So I think this does today's report probably does fit more on those who are looking to potentially hike in a couple. One final question. We got to go.

8:22Amy Silverman's people are upset we're not getting to her. Claudia Puffy the cat. Does Puffy like cold lobster roll or hot lobster roll? We do not let her have lobster. That is not a habit we want to start. It's hot lobster roll. It's Connecticut style. Why don't you bring in our next guest, Amy? Amy Wu Silverman, Managing Director, Head of Derivatives Strategy at RBC Capital Markets. Thank you for joining us in studio here today. The VIX is at 13. I mean, I don't know where the VIX is now. I got to check last. But I mean, it was pretty, it was, I mean, look, it's pretty low coming into this Labor Day weekend.

8:56What are your thoughts on volatility levels? I mean, what should investors be thinking about here? Yeah, it's interesting because, oh, I'll take this off. A little echo here. You know, what's interesting is coming into this, obviously, a lot of complacency and volatility. And especially with the report that we just had, it was interesting that at the money break evens on NFP were basically average. So, you know, you kind of look historically at these break evens and it was sort of pricing a nothing burger, which to some degree, a little complacent. Right. But the options market was pricing a little bit more for CPI, which is ahead.

9:30And I'm interested to see how this reprices, but VIX has been very resilient. I wouldn't be surprised even with how things move in terms of rates pricing, your VIX still floating around that 15, 16 handle. So when you look at the volatility market, obviously equities are a big part of that. But, you know, I'd like to call your attention to the FX market and what we're seeing in dollar yen here, because I'm looking at that smile. I'm looking at that skew. You guys are hammering the call skew. You guys seem a little bit more, at least the options, you know, a little bit more comfortable getting along the yen at these levels.

9:58Are you seeing the same thing? Are we seeing demand for the Japanese yen here? So here's what I'll say. When we look cross-asset, so I primarily focus on equity volatility, but when you look cross-asset, currency vol, at rates vol, so move versus VIX or C-VIX versus VIX, what I'll tell you is all these cross-asset vol levels have already started to bleed up. So just think about either of these cross-assets versus VIX vol. We're like talking 99th percentile. Why hasn't we seen a bleed in equity vol? Well, one, because the AI trades heavy and strong earnings were great. And then two, you've got really high dispersion, right?

10:35Like people have not left the equity market. They've just rotated within it. And that's keeping us pretty solid, pretty low VIX levels. Amy with Silverman with us here. I'm thrilled to have her with RBC this morning. Coming up, Christina Katmany of Invisco is, well, it's Labor Day. It's a point where people set up for Q4 to get to the February boni. is wall street participating in this enthusiasm in the market i get ib's good i guess rub danian private credits good etc but is wall street in the markets right now or they just get whipsawed so much they can't get you know they can't get the week started i i'd say when if you kind of think back at this point six weeks ago during that big momentum drawdown tom people had kind of gotten cleaned out and were re-levering so so sort of like clean positioning going into earnings people really came back in with really good earnings numbers.

11:27I would say yes. And the second thing I would say is, you know, you're kind of getting to this seasonal time where it's a little like, want, want, we had great earnings, but now all we have are like macro catalysts. Seasonally, this is a time when VIX does rise. But I think we're going to get a surprise this time in the sense that you have had heavy rotation, but no one's really taken money off and no one's hedging either. So people are very involved. And when you have that and perhaps you get a surprise on something like, you know, September FOMC, I think that's something that could pick up volatility a little bit more than usual during this time of the month.

12:03Well, then, Amy, let's shift back to the equity market. I mean, taking a factor based approach, you know, one factor we look at a lot here is momentum. I look at an EMFX. It's performed really, really well. If you put it in the context of a larger portfolio, it becomes a volatility dampener. Talk to us about what you're seeing momentum, a big shift there on the equity side. No, huge shift. I mean, multi-standard deviation shift in what momentum has done. You know, momentum is the thing that has been working. Winners have been winning. And we really had a drawdown in that. We had a reshifting. You know, I can tell you when we just look at our trading desk level, a lot more interest in something like the software sector.

12:35So it's almost anti-momentum, right? Like February this year, you know, we couldn't stop talking about Saspocalypse and pencils down. No one wants to talk about anything with existential terminal value. now people are like, hey, that software is looking pretty good. Let's sniff at that. I'm talking to both of you. Damien Sessa are naming Wu Silverman. The bottom line is, if it's south, buy it. Fear of missing out. If software is down, you load the boat because it's going to come back. Right, Damien? Well, I mean, there's a difference between winners keep winning and losers keep losing, right? If you take your four look back windows, call it one month, three months, six months, one year, and you kind of take your equal weight and your vol adjust and do all the things that portfolio managers do, You're supposed to get this nice, smooth, upwards-opening return.

13:17But in times like this, when things kind of go pear-shaped, we saw in March, right, where the markets got surprised, and you saw that kind of reversal sort of kick in, momentum got crushed. And it can get – I mean, so this is the thing. Like, you have to be mindful of these kind of pockets. And you're right. This is September, guys. I mean, like historically speaking, seasonally speaking, not a great month for just owning and holding and, you know, kind of putting your blinders on. So what's the enthusiasm? I mean, you go out with Lori Calvacina and talk about a frightening tandem out there. What's the mood out there, Amy?

13:46I'd still say it's pretty positive. And if you want to make your brain hurt even more, when you look at the definition of momentum, which is winners win, right, over some window, at some point, if the losers start winning, they're going to be your new momentum basket. It's just going to be a new basket of momentum that picks up. Again, kind of makes your brain hurt, but that's why we're watching these subsectors really closely. And that's why the S &P equal weight is at almost an all-time high, right? Exactly. And so sentiment out there is still not too bad, not that much hedging and not interest in talking about the U.S.

14:16yields impinge on equity performance. If yields get high enough to mean so old school, it's boring to yields compete here. I think, you know, I think everyone has it like a psychological threshold they're looking at. It doesn't really make logical sense. But, yeah, if we start getting, you know, those percentages going higher and higher, then I think some people get nervous. I'll tell you one big theme in our market retail cohort. Right. I don't think they're looking at these yields as much. I don't think they have this kind of old school, hey, when 30-year gets to X, then I got a pull on my equity.

14:49I don't hear that from them, no. So let's talk a bit, let's put our options out here on. I mean, where do you see the most compelling parts of the market? I mean, is it in playing, I don't know, skew? Is it in playing, you know, the peak-edness of the, I mean, like, what do you really like? If you have investors, is it cross-asset, you know, taking on its spread risk with the asymmetry there relative to equity risk or vice versa? What are your clients, what's really interesting to you right now, Amy? So a few things. The first is my mantra these last few years has really been give what the market takes you, you know, in the sense that, like, if you get really, really bid call skew, use call spreads, you know, take advantage of that payout.

15:25If you're getting really, really inexpensive downside, think about those puts. It's about optionality at this point. So if you've made a decent amount of money and hedges are inexpensive, it's about that optionality of owning it. Yes, it hasn't worked in the sense that, you know, you've had a market that's continued to rip. But it's about where those payouts are really relatively juicy. You know, that's almost a credit lens when you think about it. But give what the market is giving you. For the Greek leverage that you just talked about here, how far out do you make those bets? Are you making a one month bet, three month bet?

15:59Are you like Taleb in 10 years? These are the events I'm watching for right now. FOMC, obviously. There's actually Israeli elections coming up and then midterms. I think that the middle one kind of gets forgotten. But those three things, when you think about the macro events in the next one to two months, can really shift your term structure. And it can shift your correlation levels, which, again, has been something that really hasn't moved. What an honor, Jackson Hole, to speak briefly with Jacob Frankel, the former governor of the Bank of Israel. and he said America way underestimates the impact of the Israeli elections.

16:33I agree with you. Not me. He was heated. Dr. Frankel was heated. And I bet you, I mean, Amy, you're the first guest that I've interviewed really in the last few months that's even brought it up, so kudos to you. But there's also an election in Brazil coming up too, so in emerging markets, I mean, do you see people trying to... Wait, wait, wait. We gotta go. We gotta go. There's always... Damien. She just got here. I know she just got here. We should interview her for an hour. Okay, can I just state that in your world, there's always another election? I mean, come on. I mean, does Thailand have an election?

17:07Amy, go away. Amy Wu Silverman, take the long weekend. I know Calvacine is off all of September getting the kids back to school. But, you know, nice to see you. Amy Wu Silverman, RBC Capital. If you invest, lead a business, or allocate capital, one-sided views aren't enough. Join me, Brad Rogoff, the Global Head of Research at Barclays, on the Flipside podcast. Each month, I go head-to-head with one of our expert analysts on my global team to debate the economic and market issues that matter most. From inflation and AI to equity and credit trends, each debate helps you see what headlines might miss.

17:43Find the Flipside wherever you get your podcasts. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects.

18:24Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans. What if you could have even more and more and more help to pursue your goals? At LPL Financial, we offer more ways for advisors and their clients to thrive. So what if you could? Paid advertisement investing involves risk, including potential loss of principal. LPL Financial LLC member FINRA SIPC. Christina Kemp, many going, why am I doing this? Joining us now with Invesco, as she always does, on Jobs Day. How's your summer been at the desk in front of the Bloomberg Terminal? Is it like you're making coupon and things are good, or has it just been nuts?

19:02Nuts. Very non-summer-like, for sure. Okay, in what way has it been just like you've never seen? Well, I think we have a new Fed share, new leadership there. The whole market's trying to kind of grasp, like, what is communication? How do we interpret this? We've had pending elections, midterms coming up. I think you obviously brought up the Brazil election. Emerging markets have been choppy. On again, off again. On again, off again. Situation in the Middle East. I mean, it's just been nonstop. All right. Well, let's talk about the intervention, right? And all the things we saw with Bessent in the back up to that.

19:35You know, my mind goes to a different place, right? Japan has been the currency that investors, writ large, risk managers have used to fund their exposure in other places. Now you see a lot of that being taken off the books. Where do you go? As a funder? As a funder for a funding currency. Is that Swiss franc? I mean, because my concern is many a time in the past have we seen the S &B really, really surprise the markets. And if you start to see, especially in Europe, I mean, Christine, you can speak to this. I mean, look, the potential for some of these low-yielders to surprise the market to me seems pretty rich.

20:05And so I'm just curious to hear your thoughts there. Do you get kind of nervous when you hear about some of these other central banks like the ECB ahead next week? Look, so I think from a funder perspective, we've talked about this for a long time, that I think the Asian currencies are the most just out of whack from a valuation perspective. So this I think we sit here with knowing that the yen is priced at the wrong level. And I think some of the follow on from the initial intervention, coordinated intervention from the MOF and the Treasury, then the follow on was a little disappointing. but there is going to be movement.

20:39I think it's hard to kind of pinpoint what the timing is. The BOJ should be going in September, but still even sitting at 155, the yen is wildly at the wrong level. I want to explain to our folks across the country and worldwide the way you choose to listen to us. This is magic what you're hearing. You're hearing two adults in the international bond market talking. Christina Katmany and Damien Sassau are just grizzled pros at this. I understood about half of it. Caroline Hapker understood the other half. But the answer is, this is like magic. Give one more question, because I've got to go back to China.

21:14The U.S. just added 162 ,000 jobs. I mean, does this give the Fed leeway to hike in September? I mean, I think it does, right? I think so. And I think, again, we started talking about the Fed in this communication, flip-flopping back and forth. And it feels like the messaging was very different from June to July to Jackson Hole. And I think coming out of Jackson Hole, that was a very hawkish message. And I think it left it on the data to hold them back. Obviously, Waller's comments yesterday said everything lies on CPI print next week. It's hard. It's frustrating to be back in a point that we're hinged on one data point.

21:49But I think the market has a very hard time if they don't follow through and deliver a hike. And you go back to what we talked about, about Besson's comments in the long end, which is a Japan situation in the U.S. But I think the long end of the bond market has a real issue if they don't. How do you at Invesco deal with the odd boom economy nominal GDP we have? Inflation loaded, let's say, but also a real GDP loaded, 162 ,000 jobs. How do you structure a bond portfolio knowing nominal has to come down, but you don't know how? Nominal yields have to come down? No, no, no, no, no, no GDP has come down.

22:31Look, so I think you look at, this is still, if we look at global bond markets, generally a market that we want to be shorter duration, shorter duration versus benchmarks. I don't really want to own duration out the curve, even at these levels. And I know people have gotten excited about all in yields and the level of yields or like coupons of hyperscalers. There is a flood of supply, especially out the curve that is coming to global bond markets. and there is indigestion happening and we have fiscal concerns and we don't have kind of a lot of, certainly in the US, the US being the US market that it is kind of has this pass that people aren't concerned about the level of kind of debt outstanding.

23:14I think at some point that comes and takes its bite. Crowding out, Christine, I couldn't agree with you more. It is certainly a risk. I mean, we know that this is all about finding a clearing price for bonds, especially those at the long end. But for me, I love the fact that you're still long and strong EM local currency debt. Talk to us a little bit about your basis for that position. I mean, obviously we've seen the dollar off, you know what, round about one and a half percent this year. Is this more of a currency play or do you see something deeper going on? I think it's both. I think the, again, 2025 felt like a clear weaker dollar story.

23:46This year has been a bit more challenged with the cross currents, but it still, I think, is a place where there's value in EM carry and some of the high yielders from an FX perspective. And then if you look at some of kind of the country specific, like Brazil with the election coming up, you've, it's traded poorly this year. But we do think that there's value of just like the overall level of high yield and a reprice. And you've started to see some movement in the polls there with expectations around Bolsonaro. But three weeks ago, you were pricing a very consensus that Lula takes it away. So the question is, this would be Lula 4.