In their quest for clues that the US central bank might cut rates in September, investors didn’t need to consult a crystal ball or hire a psychic. All they had to do was glance at the latest US employment figures and skim through the minutes of the Fed’s July meeting. Spoiler alert: there’s a juicy story about those employment figures, but let’s start with the Fed’s chit-chat. One line in the minutes had financiers buzzing: the ‘vast majority’ of the Monetary Policy Committee members noted that if data kept rolling in as expected, it would probably be appropriate to ease policy at the next meeting. Translation: unless aliens invade Earth, rates are dropping by a quarter point in September.
This hunch was bolstered by a communiqué from the US Bureau of Labor Statistics (BLS), which updated the official employment data for March 2023 to March 2024. Cue the double facepalm. First, the figures were revised so dramatically that it made everyone question their reliability. Second, the data was released late, but some banks got the scoop early by—wait for it—phoning the BLS. Now, let’s dive into the figure revision drama. Every month, the BLS estimates job creation using a statistical method. Later, they cross-check these estimates with tax data for a more accurate picture. Usually, the difference is minor, around 0.1% over the last decade. But for March 2024, it was a hot mess: a 0.5% difference. This means the US didn’t create 2.9 million jobs over the year, but ‘only’ 2.1 million. That’s 178,000 jobs per month instead of 246,000.
This discrepancy skewed economic analyses and probably the Fed’s view on the labor market’s strength, which they feared could reignite inflation. The quality of the BLS’s employment figures is often questioned, and this latest blunder won’t help. The data was supposed to drop at 10am but got delayed to 10:30am. Luckily, the data aligned with market expectations about monetary policy. If the labor market had been stronger than expected, it would’ve thrown rate cut forecasts into chaos. So, this episode is a double whammy of embarrassment for the BLS. But investors? They’re still riding high on their ‘blue sky’ scenario. This morning, new job data confirmed this scenario. The Labor Department reported that initial claims for state unemployment benefits rose 4,000 to a seasonally adjusted 232,000 for the week ended Aug. 17. This is in line with economists' expectations.
US indices naturally rose yesterday. The Dow Jones gained 0.14%, the S&P500 around 0.4%, and the Nasdaq 100 about 0.5%. The slight dip from the previous day, which ended an 8-session winning streak on the S&P500, was wiped out.
The session highlighted the contrast between retailers Target and Macy’s. Target jumped 11% thanks to its low-price strategy, while Macy’s tumbled 12% after lowering its forecasts due to high prices. In Europe, it was a sea of green. Consumer stocks led the gains, while defensive sectors (health) and oil-linked stocks lagged. Gold had its moment, and the euro shone (a bit) against the dollar, hitting a one-year high. The mechanism is simple: expectations of a Fed rate cut weaken the dollar as investors seek higher yields elsewhere. This makes gold, which doesn’t generate returns, more attractive if rates fall. Plus, a weaker dollar makes gold, priced in greenbacks, more appealing to investors with other currencies, boosting buying. Oil remains under pressure, with Brent crude flirting with the USD 76 mark. In the Asia-Pacific region, markets are all over the place but with minor changes. Tokyo’s Nikkei 225 rose 0.5%, China’s Shanghai Composite dipped 0.1%, Hong Kong’s Hang Seng gained 0.7%, and Sydney and Mumbai are up 0.2%. European markets are also up.
The day's economic highlights
Today, the economic calendar features flash composite PMI data from Germany, the Eurozone, the UK, and the US, along with the weekly initial jobless claims data from the US. See the full agenda here.
The dollar is worth EUR 0.8981 and GBP 0.7628. The ounce of gold remains firm at USD 2,496. Oil is down, with North Sea Brent at USD 76.19 a barrel and US light crude WTI at USD 71.94. The yield on 10-year US debt is down to 3.84%. Bitcoin is trading at USD 61,000.
In corporate news:
- Microsoft has revised its sales forecast for the Azure division downward for the first quarter, now aiming for a range between $23.80 billion and $24.10 billion, instead of $28.6 billion to $28.9 billion,.
- Paramount Global - Investor Edgar Bronfman Jr. is reportedly offering $6 billion to acquire National Amusements and a minority stake in Paramount Global, according to The Wall Street Journal. This bid is an increase from the previously suggested $4.3 billion.
- Walt Disney has appointed James Gorman, former CEO of Morgan Stanley, to head the committee tasked with finding a successor to CEO Bob Iger.
- Zoom Video Communications increased its full-year sales forecast on Wednesday, capitalizing on robust demand for its AI-powered collaboration tools.
- BlackRock has reduced its support for ESG-related shareholder proposals between 2023 and 2024.
- Wolfspeed disclosed on Wednesday that it anticipates its first-quarter sales to fall short of consensus estimates, citing potential manufacturing issues that could restrict its production capacity. Despite this, the company's stock rose by 7% before the market opened.
- Synopsys announced on Wednesday expectations for fourth-quarter sales and earnings to surpass Wall Street predictions, indicating a continuous demand for its AI chip design software.
- NetEase - Second-quarter revenue did not meet consensus expectations.
- Peloton Interactive reported higher-than-expected fourth-quarter sales on Thursday, attributed to new partnerships and the company's bike rental program.
- Charles Schwab - TD Bank Group has stated it plans to sell a portion of its stake in Charles Schwab in order to mitigate the financial repercussions of penalties imposed by U.S. regulators.
- Snowflake - On Wednesday, the data analytics firm raised its full-year sales forecast as more clients engaged with its AI-driven services. However, the company maintained its profit margin outlook for fiscal year 2025.
- Nordson - The industrial equipment manufacturer reported earnings for the third quarter that exceeded consensus estimates, bolstered by robust sales in its industrial division.
- Agilent Technologies reported sales and profits for its third quarter that were higher than expected, driven by strong demand for its medical tools and equipment used in clinical studies.
- Urban Outfitters - The apparel retailer posted a decline in comparable sales of 9.3% year-over-year for the second quarter.
Analyst recommendations:
- Arrowhead Pharmaceuticals, Inc.: Baptista Research has downgraded the stock to buy from hold, with a price target decreased from $30 to $28.90.
- Assurant, Inc.: Piper Sandler & Co has downgraded the stock to neutral from overweight, with a target price of $200.
- Capri Holdings Limited: Baptista Research has downgraded the stock to hold from buy, with a price target lowered from $49 to $37.
- Clean Harbors, Inc.: Zacks has downgraded the stock to neutral from outperform, with a price target reduced from $269 to $253.
- Cytokinetics, Incorporated: Baptista Research has upgraded the stock to buy from outperform, with a price target increased from $42.40 to $77.20.
- Estee Lauder: Piper Sandler & Co has upgraded the stock to overweight from neutral, with the target price raised from $95 to $114.
- Sentinelone, Inc.: Wells Fargo has upgraded the stock to overweight from equal weight, with the target price raised from $19 to $29.
- Under Armour, Inc.: Baptista Research has downgraded the stock to hold from buy, although the price target has been raised from $7.90 to $9.50.
- New York Community Bancorp, Inc.: Compass Point Research & Trading has maintained a neutral recommendation, with the price target increased from $4.50 to $11.50.
- Snowflake Inc.: Bernstein has maintained its market perform recommendation, with the price target reduced from $185 to $130.
- Wolfspeed, Inc.: Mizuho Securities has maintained a neutral recommendation, with the price target decreased from $28 to $17.
- Corteva, Inc.: CICC has initiated coverage with an outperform recommendation and a target price of $62.
- Epam Systems, Inc.: Deutsche Bank has initiated coverage with a hold recommendation and a target price of $204.
- Admiral Group Plc: Jefferies has upgraded the stock to hold from underperform, with the price target increased from 2300 GBX to 3025 GBX.
- Derwent London Plc: Berenberg has maintained its buy recommendation and raised the target price from 2494 GBX to 2700 GBX.