Bears believe the hot employment sector creates a lot of uncertainty about the Federal Reserves next move and makes the odds of rate cuts later this year even slimmer.
Keep in mind, the JOLTS data is for April so it is kind of a long look backward but the Fed still relies on the report to shed light on which direction unemployment might be headed. More important for the Fed's upcoming policy decision will be the May Employment Report scheduled for release tomorrow morning, which economists expect to show a gain of around +180,000 jobs versus +253,000 in April.
Investors will be tuning in to ADP's private payroll report today, which is expected to show payroll growth slowed to +160,000 compared to +296,000 in April. Bottom line, if the jobs numbers come in hotter than expected the trade is going to look for the Fed to stay hawkish for longer.
The Fed has made it clear that they want to cool the labor sector and slow wage gains in order to help battle inflation. From what I'm gathering, those on Wall Street are now thinking the Fed might take a "do nothing" approach at its upcoming meeting in two weeks, then hike in July if the labor market and wage growth stays hot.
Some are saying the "pause" might also help ease some of the strain associated with the debt ceiling debacle in Washington and ease some of the pressure on the regional banks.
Keep in mind, the Fed has hiked ten times in a row and has rates back at a 16-year high.
The Federal Deposit Insurance Corporation’s (FDIC) recently released its quarterly report that US bank deposits (during Q1) fell by the most in almost four decades (since 1984).
The Chairman commented that banks “face significant downside risks from the effects of inflation, rising market interest rates, slower economic growth, and geopolitical uncertainty.” In other words, perhaps the Fed will deem it best to "pause" for a moment with all that's happening in Washington and the imbalance in the regional banks.
Investors are also anxious to see the ISM Manufacturing Index today after the gauge showed an unexpected jump in the Prices Paid component last month, indicating ongoing and lingering inflationary pressures at the wholesale level. On the China front, May data showed that activity across both manufacturing and services declined, adding to concerns that the country's reopening "boom" from Covid lockdowns has already fizzled.
The country has been mostly free from Covid-era lockdowns and other restrictions since the end of 2022. However, China's economy has largely failed to experience the reopening rebound that many Wall Street bulls were anticipating. While this is partially due to sluggish demand inside China as well as ongoing problems in the country's property market, it's also related to an overall slowdown in the global economy. Both issues could translate to poor growth prospects for US companies that many economists still believe face a possible recession here at home.
Earnings today from Dell, Dollar General, Hormel Foods, and lululemon could provide some more insights into consumer health.
As for the debt ceiling deal, most believe it will clear the next major hurdle in the Senate, it's just a matter of timing. If it comes up for a vote as expected on Friday, then there are no worries about hitting the June 5 deadline.
Investors could get nervous heading into the weekend if the Senate fails to pass the legislation by Friday, though. I still think big-tech, especially those with an AI story will stay hot. There's just a ton of money on the sideline that is looking for returns and big-tech seems to be offering the best opportunity....
New Gallup Poll Finds Majority of Americans Not Satisfied With State of Our Nation... Duh! A new Gallup poll recently released revealed that only 18% of Americans are satisfied with the state of the nation, about half of the 35% historical average. Data shows that the percentage of Americans reporting they are satisfied with the way the country is going has stayed below 20% since March. The poll also noted the lowest rating of national satisfaction since 1979 was in October 2008 during the great recession, and the highest point was in February 1999 at 71%, about a year ahead of the dot.com bubble bursting. On the economy, 17% of Americans said that economic conditions are “excellent” or “good while 36% said they are “only fair,” and 47% said the economic conditions were “poor.” When asked what the most important problem facing the United States was today, the top answer, at 18%, was the government, followed by the economy, and immigration as the most important issues. Source The Hill
Apple Tops +$1 Trillion in App Store Commerce: Ahead of Apple’s Worldwide Developer Conference next week, the company is offering an update on its app ecosystem with the release of a new report detailing app earnings over the course of last year. In the analysis, Apple says its App Store ecosystem generated $1.1 trillion in developer billings and sales in 2022, 90% of which was commission-free, a metric it likes to share to downplay the growing complaints about the high cost of doing business on a marketplace that generally takes a 15% to 30% commission on in-app purchases and paid downloads, with some exceptions. This $1.1 trillion breaks down as $910 billion in total billings and sales from the sale of physical goods and services, $109 billion from in-app advertising, and $104 billion for digital goods and services. The figures are a sizable increase from 2019 data, when Apple said the App Store had facilitated $519 billion in commerce, with then “just” $61 billion coming from digital goods and services. Source TechCrunch
How Did it Happen... Gradually then All At Once! Tesla "Model Y" Top Selling Car Worldwide: Tesla scored a huge milestone in the first quarter amid its crusade to ramp up global EV adoption, producing the best-selling car in the world. A new report from data firm JATO Dynamics, along with automotive site Motor.1.com , found the Tesla Model Y was the No. 1 selling vehicle globally in the first quarter of the year, marking the first time an EV was the top-selling vehicle. But the electric vehicle maker may have paid a big price with lower profit margins. JATO said Tesla sold 267,200 Model Ys in Q1, up 69% from a year ago. The second-best-selling car was Toyota’s Corolla, with 256,400 vehicles sold globally. JATO’s data spanned 53 international markets, plus data and forecasts for 31 other markets and estimates for the balance of global markets. Drilling deeper into the data, JATO found that China accounted for 35% of all Model Y sales, with the US close behind at 31%. For those two countries, Model Y sales grew 26% in China and a whopping 68% in the US versus a year ago. The Tesla Model Y was also the top-selling vehicle in the EU. Yahoofinance
Saudi Arabia, Russia Ties Under Strain Over Oil-Production Cuts: Tensions are rising between Saudi Arabia and Russia as Moscow keeps pumping huge volumes of cheaper crude into the market that is undermining Riyadh’s efforts to bolster energy prices, people familiar with the matter say. Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, has expressed its anger to Russia for not following through fully on its pledge to throttle production in response to Western sanctions, the people said. Saudi officials have complained to senior Russian officials and asked them to respect the agreed cuts, the people said. The friction is very apparent between two of the world’s biggest oil producers ahead of a crucial meeting between members of OPEC and a group of Russia-led oil producers, collectively known as OPEC+, in Vienna on June 4, the people said. The cartel is set to decide on a production plan for the second half of the year amid growing concerns about a slowing global economy crimping energy demand. Earlier this week, the Saudi energy minister issued a warning to oil speculators, signaling to the market that a further production cut was on the table amid worries over the latest buildup in short positions and Russia’s failure to meet its promised voluntary cuts. Meanwhile, Russian President Vladimir Putin said oil prices were approaching “economically justified” levels, indicating that there might not be a need for an immediate change to the group’s production policy. Source WSJ
Commuting Costs +$2,000 and +39 Hours More Than Pre-Pandemic: The average American shells out $8,466 and spends 239 hours commuting yearly, according to calculations of various government data from real estate agent matching service Clever Real Estate. That’s 31% more money and 20% more time than before the pandemic; commuting cost the average worker $6,449 and 200 hours in 2019. Today’s cost of getting to and from the office is about 19% of commuters’ annual income, finds Clever; that includes an average of $867 on gas and $410 on maintenance a year for a car (obviously, some commuters take public transport). Remote workers spend half the amount of money as their in-person peers, finds research from Owl Labs; in-person work runs a worker $863 monthly in commuting and food costs versus $432 a month when working from home. Of course, it’s all dependent on the situation. Source Fortune
Commodity Crash Signals Disinflation Is Taking Hold for Now: From copper to wheat to natural gas, the cost of some of the world’s most important products is crashing, bringing long-awaited relief for consumers that were stung by last year’s soaring prices. The commodity crunch unleashed by Russia’s invasion of Ukraine has taken a sharp reversal, with a Bloomberg gauge dropping more than -10% since the start of the year to the lowest since 2021. Driving the disinflationary trend are a world economy flirting with recession, Europe’s industrial slump, and China’s weaker-than-expected emergence from Covid Zero policies. Energy prices have been at the forefront of this year’s commodities plunge, particularly in Europe, where natural gas futures have tumbled by about two thirds this year. For consumers, stubbornly high grocery bills are still a massive weight on household budgets in many parts of the world, but there are signs that food inflation could also lose momentum. Futures for wheat have more than halved from last year’s record high. Russia and the European Union, the top two shippers, are set for bumper 2023 harvests. Brazil is collecting its biggest-ever corn and soybean crops, tempering feed bills. Still, it’s too soon to call the end of the cost-of-living crisis just yet, particularly because inflation might come down slower than commodity prices would imply. Goldman Sachs Group Inc. still expects commodities to come roaring back should recession concerns prove to be misplaced. Source Bloomberg
Amazon's Ring to Pay $5.8 Mil After Staff Caught Snooping on Customers: Ring, the Amazon-owned maker of video surveillance devices, will pay $5.8 million over claims brought by the Federal Trade Commission that Ring employees and contractors had broad and unrestricted access to customers’ videos for years. The FTC said that Ring employees and contractors were able to view, download, and transfer customers’ sensitive video data for their own purposes as a result of “dangerously overbroad access and lax attitude toward privacy and security.” According to the FTC’s complaint, Ring gave “every employee — as well as hundreds of Ukraine-based third-party contractors — full access to every customer video, regardless of whether the employee or contractor actually needed that access to perform his or her job function.” The FTC alleged on at least two occasions Ring employees improperly accessed the private Ring videos of women. In one of the cases, the FTC said the employee’s spying went on for months, undetected by Ring. Source TechCrunch
Meta Threatens to Block News in California Over Journalism Bill: Meta is threatening to block users in California from sharing news articles on its social media networks to protest a state legislative proposal that would force tech companies to pay publishers for their content. The social media giant said Wednesday that if the California Journalism Preservation Act passes, the company would “be forced” to pull news from Facebook and Instagram in the state rather than agree to pay news outlets the journalism usage fee that the bill would require. In recent years, Meta has threatened to pull news from its platforms in protest of similar proposals in Australia and Canada. The law eventually passed in Australia and has been credited with directing an estimated $130 million annually to news outlets from Meta and Google. The Canadian proposal is still under consideration. Source Washington Post
CEO Pay Rose Less Than 1% Last Year: The median total compensation* for S&P 500 CEOs was $14.8 million in 2022—an increase of just +0.9% from the prior year. This marks the smallest year-over-year increase for S&P 500 CEOs since 2015, when pay saw a slight uptick of +0.8%, and a far cry from last year’s study when pay saw a record increase. The largest decline across all pay components was seen in annual bonuses, which dropped in value by -15.5% from $2.7 million in 2021 to $2.3 million in 2022—companies were less willing to pay a premium cash bonus as returns in the market were bleak. The highest-paid CEO in 2022 was Sundar Pichai of Alphabet, who was awarded a total pay package of nearly $226 million. Pichai was one of two CEOs to earn a nine-figure pay package—Michael Rapino of Live Nation Entertainment received the other at approximately $139 million. The top 10 highest-paid CEOs from 2022 are featured below. The data comes from the Equilar-Associated Press CEO Pay Study Source Eqular
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