Weekly Market Update: Hawkish speculation around Fed policy offset by surprisingly weak jobs report, as earnings season hits its peak
Major stock indices continued to perform well this week with headline performance in the in Dow and S&P masking pockets of weakness in the smaller caps. Q1 earnings season headed down the back nine with corporate reports and conference calls remaining fraught with management handwringing about rising cost inflation. Nevertheless Fed officials were once again out en masse emphasizing the risk of an outbreak of runaway inflation remains remote despite warning signs of potential asset bubbles. Treasury Secretary Yellen was even forced to walk back clumsy comments regarding Fed policy on interest rates from a virtual summit on Tuesday which weakened the NASDAQ that morning. Copper prices rose to the highest levels in decade, lumber prices continued to surge, and dogecoin, crypto’s “meme coin” rocketed up another 100% ahead of Elon Musk’s appearance on SNL.
Friday’s April payrolls data came in well short of estimates, surprising nearly everyone on Wall Street, who after the fact attributed the miss to seasonal adjustments. Rates initially dropped with the US dollar while stock futures and most commodities rose on the belief the data further postpones the Fed’s desire to begin '“talking about talking about” tapering asset purchases. A jump in the labor force participation rate and a notable decline in the underemployment rate did suggest slack is coming out of the labor market as the pandemic subsides, but the data ratcheted up an ongoing labor-shortage debate. To that end, following the report, the US Chamber of Commerce called for an end to the $300-per-week supplemental federal unemployment benefit to help address the labor shortage, echoing what we have heard from a few red state governors already. President Biden addressed the report from the White House pushing back on that narrative, saying the report showed quite the opposite, by indicating more help is still sorely needed and that the government’s enhanced jobless benefits have not measurably restrained workers from returning to work. For the week, the S&P gained 1.2%, the DJIA was up 2.7%, but the Nasdaq lost 1.5% amid sector rotation.
In corporate news this week, amid a slew of corporate earnings, some travel companies released quarterly color as vaccination numbers accumulate in the US. Expedia shares rose as management sounded hopeful as the travel sector marches towards full reopening. Hilton noted its April bookings are exceeding the peak 2019 levels by almost 10%. TripAdvisor predicted its Q2 revenue would improve sequentially, both in absolute terms and as a percentage of 2019, despite Europe’s lagging recovery. Lyft said it would increase driver incentives in coming months to address supply and demand imbalances, while investors worried that rising Uber driver recruitment costs could dent profitability. PayPal shares lifted after posting big beats and reporting a record amount of volume flow as e-commerce continues its surge. Etsy fell after reporting mixed earnings and an underwhelming outlook for EBITDA and gross merchandise sales. Roku reported its highest growth in sales since it IPO’d in 2017.
Verizon divested its media unit, which includes Yahoo and AOL, to Apollo Funds for $5B, after purchasing the same assets for $9B less than four years ago. Home decor retailer At Home Group agreed to a go-private deal with PE firm Hellman & Friedman for $36/share, though the agreement includes a 40-day go-shop period. Facebook’s independent Oversight Board affirmed the suspension of former President Trump's account for the time being but called on management to review the proportionality of the ban within six months. Peloton announced a recall of 125K Tread+ treadmill units at a cost of $165M after 70 reported injuries and the death of a child.
SUN 5/2 (HK) Macau Apr Casino Rev (MOP): 8.4B v 8.3B prior; Y/Y: 1,014% v 1,054%e Investor Warren Buffett: Seeing signs of inflation and spiking demand across its businesses - Annual report
MON 5/3 (TR) Turkey Apr CPI M/M: 1.7% v 1.8%e; Y/Y: 17.1% v 17.3%e (7th straight month of rising inflation) *(DE) GERMANY APR FINAL MANUFACTURING PMI: 66.2 V 66.4E (confirms 10th month of expansion) *(EU) EURO ZONE APR FINAL MANUFACTURING PMI: 62.9 V 63.3E (confirms 10th month of expansion and record high) (EU) EU proposes to ease restrictions on non-essential travel to the region - statement *(US) APR MARKIT FINAL MANUFACTURING PMI: 60.5 V 60.7E (10th consecutive month of expansion) *(US) APR ISM MANUFACTURING: 60.7 V 65.0E; PRICES PAID: 89.6 V 86.1E (US) NY Gov Cuomo: announces 'major reopening' of NY state on May 19th; most capacity restrictions will end across the tri-state region May 19th - press (US) Atlanta Fed GDPNow raises Q2 GDP forecast to 13.2% from 10.4% MSFT Bill and Melinda Gates to file for divorce, will continue to work together at their foundation
TUES 5/4 880.HK Reports Q1 (HKD) Net -647M v 409M y/y, , Rev 2.48B v 2.60Be (NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -0.7% v -0.1% prior (US) Treasury Sec Yellen: rates may have to Rise to stop economy overheating - Atlantic's virtual summit (US) Atlanta Fed GDPNow raises Q2 GDP forecast to 13.6% from 13.2% (CN) EU said to suspend efforts to ratify China-EU investment deal - AFP
WEDS 5/5 DPW.DE Reports Q1 Net €1.19B v €0.3B y/y, EBIT €1.9B v €1.87Be, Rev €18.9B v €15.5B y/y MAERSKB.DK CEO: No signs of rising inflation in global economy; expects delays at Suez canal to be over during Q2 - post earnings comments *(FR) FRANCE APR FINAL SERVICES PMI: 50.3 V 50.4E (confirms 1st expansion in 8 months) *(DE) GERMANY APR FINAL SERVICES PMI: 49.9 V 50.1E (moves back into contraction) *(EU) EURO ZONE APR FINAL SERVICES PMI: 50.5 V 50.3E (confirms 1st expansion in 8 months) GM Reports Q1 $2.25 v $1.02e, Rev $32.5B v $33.3Be; Says chips shortage will Not impact growth and EV initiatives *(US) APR ADP EMPLOYMENT CHANGE: +742K V +850KE (strongest reading since Sept 2020) FB Affirms suspension of former Pres Trump's Facebook account for time being; FB-appointed oversight board finds Facebook failed to impose proper penalty and it was 'not appropriate to impose the indeterminate and standardless penalty of 'indefinite suspension'; calls for Facebook to review proportionality of the ban within 6 months (DE) German Chancellor Merkel: sensible for EU to develop a trade agreement with the US; US remains Europe's most important ally *(US) APR ISM SERVICES INDEX: 62.7 V 64.1E *(US) DOE CRUDE: -8M V -2ME; GASOLINE: +0.7M V -1ME; DISTILLATE: -2.9M V -1ME US Trade Rep Tai: US supports a waiver of vaccine patent protections at the WTO COST Reports Apr total SSS +24.2% (ex-gas) *(CN) CHINA NATIONAL DEVELOPMENT AND REFORM COMMISSION (NDRC) 'INDEFINITELY' HALTS ACTIVITIES UNDER CHINA AUSTRALIA ECONOMIC DIALOGUE
THURS 5/6 (FR) Royal Navy ships said to be ordered to Jersey as French fishermen prepare blockade - financial press MT.NL Reports Q1 Net $2.29B v $1.21B y/y, EBITDA $3.24B v $1.73B y/y, Rev $16.2B v $14.2B y/y VOW3.DE Reports Q1 Net €3.4B v €0.5B y/y, Op €4.8B v €0.9B y/y, Rev €62.4B v €55.1B y/y; chip shortage likely to have somewhat more pronounced effects in Q2 than before *(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.00%; AS EXPECTED *(UK) APR FINAL SERVICES PMI: 60.0 V 60.1E (confirms 2nd month of expansion and highest since Oct 2013 ) *(EU) EURO ZONE MAR RETAIL SALES M/M: 2.7% V 1.6%E; Y/Y: 12.0% V 9.4%E TSLA Reportedly seeing exceptionally strong demand for its vehicles; Said to be already sold out for Q2 with 2 months left - Electrek *(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.10%; AS EXPECTED (CN) Reportedly top trade negotiators from China and US Biden administration may hold their first conversation soon to review the phase one trade deal - SCMP *(US) Q1 PRELIMINARY NONFARM PRODUCTIVITY: 5.4% V 4.3%E; UNIT LABOR COSTS: -0.3% V -1.0%E SQ Reports Q1 $0.17* adj v $0.16e, Rev $5.06B v $3.37Be
FRI 5/7 SIE.DE Reports Q2 Net €2.39B v €2.0Be, Industrial Business EBITA €2.1B v €1.59B y/y, Rev €14.7B v €14.1Be Former FDA head Dr. Scott Gottlieb pontificates CDC should consider now to remove indoor mask mandate - CNBC *(US) APR AVERAGE HOURLY EARNINGS M/M: 0.7% V 0.0%E; Y/Y: 0.3% V -0.4%E *(US) APR CHANGE IN NONFARM PAYROLLS: +266K V +933KE (below lower-end of analyst expectations) *(US) APR UNEMPLOYMENT RATE: 6.1% V 5.8%E (US) USD dollar weaker after April Payroll data comes in below All analyst expectations *(CA) CANADA APR NET CHANGE IN EMPLOYMENT: -207.1K V -150.0KE; UNEMPLOYMENT RATE: 8.1% V 8.0%E (US) Atlanta Fed GDPNow cuts Q2 GDP forecast to 11.0% from 13.6% (US) Treasury Sec Yellen: We believe we will reach full economic employment next year; Apr jobs report underscores the long climb back for the US economy - WH briefing (US) MAR CONSUMER CREDIT: $25.8B V $20.0BE