The New York Stock Exchange fell again on Friday, after the publication of a strong employment report in May in the United States, which should encourage the Federal Reserve to quickly raise its key rates to curb inflation. After Jamie Dimon (JP Morgan), it's the turn of Elon Musk (Tesla) to throw a chill by evoking a “bad feeling” for the economy. Oil continued to rise, while the yield on the US 10-year government bond ended the week close to 3% against 2.74% last Friday.
At the close, the Dow Jones lost 1.05% to 32,899 points, while the broad S&P 500 index lost 1.63% to 4,108 pts, and the Nasdaq Composite, rich in technology and biotech stocks, fell again from 2.47% to 12,012 pts after a rebound of 2.7% on Thursday.
Over the week (shortened due to Memorial Day on Monday), the three indices all fell by around 1%, after their rebound of around 6% last week. Since the start of the year, the Dow Jones has lost 9.5%, the S&P 500 has fallen 13.8% and the Nasdaq has dropped 23.2%.
Nearly 400,000 job creations in May, April figures revised upwards
Highly anticipated, the monthly report on employment in May in the United States confirmed the strength of this market, in contradiction with the data published the day before by ADP which reported a sharp drop in job creation in the private sector. …. According to the report from the Labor Department, the US economy created far more jobs than expected last month, ie 390,000 against 323,000 expected by the consensus. In addition, the April figures have been revised up to 436,000, against 428,000 initially estimated, enough to justify several tightening of the screw by half a point of the Federal Reserve during its next meetings, in order to avoid overheating. .
The unemployment rate remained stable in May at 3.6%, against a 3.5% consensus. Job creations in the private sector came out at 333,000, against a consensus of 302,000. The day before, ADP had for its part reported only 128,000 new jobs, a figure which had contributed to the rebound on Wall Street.
The only consolation of this publication, the average hourly wage increased a little less than expected in May, by 0.3% over one month against +0.4% consensus, but it still climbs by 5.2% over one year. The labor force participation rate stood at 62.3%.
Towards 3 rate hikes of half a point by the Fed?
Furthermore, the composite PMI activity index for May came out at 53.6 in the final reading, very close to the consensus (53.8 according to FactSet). The services indicator finished at 53.4 (53.5 consensus), still signaling a solid expansion of the US economy. The ISM services index came in at 55.9, down from a FactSet consensus of 55.7 and a level of 57.1 a month earlier. The indicator signals a slight slowdown in growth, but still reflects a clear expansion.
Markets are still nervous about the US Federal Reserve's monetary tightening cycle, which could tip the economy into recession, according to some economists. Futures markets are now projecting three, not two, half-point hikes in June and July, but also in September, before considering a pause or a slowdown by the Fed… After a hike of a quarter of a point in March and half a point in April, the “fed funds” rate is currently between 0.75% and 1%.
On Thursday, Fed Vice Chair Lael Brainard hinted there would be no pause in rate hikes in September. She said she supported a turn of the screw of at least half a point in June and July, and even more in the following months if inflation, which she described as “challenge number one”, does not subside.
“Right now it's very hard to see any justification for a pause (at the September meeting). We still have a lot of work to do to get inflation back to our 2% target,” the issue said. two from the Fed.
On the US bond markets, sovereign yields rose sharply this week in the face of a more “hawkish” Fed, which also began reducing its balance sheet on June 1. The 10-year T-Bond yield came in at 2.96% Friday night from 2.74% last Friday, while the 2-year T-Bond yield was 2.66% from 2.48% last Friday. In the euro zone, the yield of the 10-year German Bund gained another 3 bp on Friday to 1.26%.
Oil rises to $120 a barrel, despite OPEC+ gesture
On the foreign exchange market, the dollar index gained 0.32% on Friday to 102.15 points against a basket of benchmark currencies, while the euro lost 0.24% to $1.0719. Gold, which gained 1.2% on Thursday, fell 1.1% on Friday, ending at $1,850.20 an ounce for the August Comex futures contract. Bitcoin failed to hold the $30,000 threshold, pointing Friday evening to $29,477, down 2.5% over 24 hours.
Oil continued its ascent on Friday, amid an agreement this week on an embargo on Russian oil by the European Union. A barrel of US WTI light crude (July futures) gained 1.7% to $118.87 on the Nymex, while August-maturity Brent North Sea crude rose 1.8% to $118.87. $119.72 on ICE.
Faced with pressure from the United States, the OPEC + countries finally agreed on Thursday to accelerate the monthly production increase of the group of producing countries to 648,000 barrels per day in July and August, against a monthly increase of around of 430,000 so far. But this new deal was not enough to drive down oil prices, which were also supported by the announcement of a stronger than expected drop in weekly crude inventories in the United States.
VALUES TO FOLLOW
Tesla lost 9.2%! Elon Musk, chief executive of the electric vehicle maker, who had recently made it clear to his employees that returning to work in person was essential, indicated this time that he had a “super bad feeling” about the economy. At least that's what Reuters learned, citing an email from the billionaire to Tesla executives. Musk would thus like to cut 10% of the group's workforce. The email in question is captioned: “Suspend all hiring worldwide”. Tesla currently employs approximately 100,000 people globally.
Musk is not the first boss to warn about the very significant economic risk. Earlier this week, the boss of JP Morgan (-0.7%), Jamie Dimon, had indicated on Wednesday that he feared a “hurricane” to come.
Musk's message about the hiring freeze and expected job cuts comes two days after the world's richest man told employees to return to work or leave the company. On Tuesday, the businessman had asked his staff to return to the workplace or leave the company, a request which has already been rebuffed in Germany where the company has a new factory. “Everyone at Tesla is required to spend at least 40 hours in the office per week,” Musk wrote in the email. “If you don't show up, we'll assume you quit.”
Apple (-3.8%) will improve working conditions at retail stores in the face of organizing efforts, Bloomberg reports. Citing employees with knowledge of the plans, the article says the California-based Apple group has told staff at some stores that changes aimed at easing work hours will come into effect in the coming months, with some of the changes to be put in place. in place in the coming weeks, and others later in the year. Changes to be made would include a 12-hour minimum between work shifts, up from the current 10-hour minimum, a maximum of three days per work week after 8 p.m., a maximum of five consecutive work days up from six days now,
Coinbase fell 9.6%. The cryptocurrency exchange announced on its corporate blog: “In response to current market conditions and continued efforts to prioritize business, we will be extending our hiring freeze for new roles and replacements for the foreseeable future. and cancel a number of accepted offers”.
Okta (+5%). The American identity and access management firm has raised its forecast on the sidelines of strong quarterly. For the first fiscal quarter, revenue soared 65% and subscription revenue 66%. Total revenues were $415 million. The adjusted operating loss was $41 million. Adjusted net loss was $43 million, 27 cents per share, versus $13 million a year earlier. Free cash flow was positive at $11 million over the period, compared to $53 million a year earlier. For the staggered fiscal year 2023, total revenue is now expected between $1.805 billion and $1.815 billion, up 39 to 40%, for an adjusted operating loss ranging from 167 to 162 million and an adjusted net loss of 1.11 at 1,
Lululemon (-0.6%), the Wall Street-listed Canadian group specializing in sportswear, particularly in the area of yoga, announced robust quarterly results last night, surpassing its already notable performance from the pandemic. LULU has also boosted its forecast. The company now anticipates annual revenue of $7.61 billion to $7.71 billion, down from a previous range of $7.49 billion to $7.62 billion. 2022 earnings per share are expected between $9.42 and $9.57, down from a previous range of $9.15 to $9.35. Adjusted earnings per share are expected to be between $9.35 and $9.5, higher than the consensus. Over the quarter, adjusted EPS was $1.48, beating expectations, versus $1.16 a year earlier. Revenue hit $1.61 billion, beating consensus 4%, down from 1,
CooperCompanies (-2.9%), the American designer of medical equipment, specialist in ophthalmology, announced yesterday evening, for its second fiscal quarter, revenues up 15% to 830 million dollars, with above all a performance 40% of CooperSurgical. GAAP diluted earnings climbed to $2.55, while adjusted EPS fell 4% to $3.24. The adjusted EPS consensus was $3.43, for $821 million in revenue. Management emphasizes revenue growth and market share gains. The 2022 guidance is adjusted. Revenues are expected between 3.28 and 3.312 billion dollars, with organic growth of 9 to 10%. Adjusted earnings per share are expected between $13.09 and $13.29.
Toro (+1%), the American giant of lawn care equipment, active in particular in mowers, missed the sales consensus for the quarter but beat that of profits. For its second fiscal quarter, which ended at the end of April, the group posted a net profit of $131 million, or $1.24 per share, against $142 million a year earlier. Excluding items, adjusted EPS was $1.25 versus $1.24 FactSet consensus. Revenue improved 8.7% to $1.25 billion. Toro is also allowing itself to revise its annual financial forecasts upwards, despite the supply chain challenges.
Turning Point Therapeutics soared 118.3%! Bristol-Myers Squibb will indeed buy this biotechnology group active in oncology, at the clinical stage, as part of a cash deal valuing Turning Point at 3.8 billion dollars. The total consideration for the deal is $4.1 billion. Under the terms of the agreement, Turning Point shareholders will receive $76 per share in cash, a premium of 122.5% over the previous day's closing price. Bristol-Myers anticipates an accretive impact of the deal on its adjusted earnings per share from 2025. BMS intends to finalize the operation using its available cash.
American Airlines (-7.1%) in turn raised its revenue forecast for the current quarter given the strength of demand and the increase in fares. The first American airline now anticipates total revenue 11% to 13% higher than the level of the second quarter of 2019, against a rise of 6 to 8% previously envisaged. It expects its capacities to represent 92% to 93% of the level observed over the same period of 2019 against 92 to 94% previously. Unit revenue should increase by 20 to 22% against a previous range of 14 to 16%, while unit costs, excluding fuel, are expected to rise by 10 to 11% (vs. 8 to 10%).
Kohls (+0.7%). According to the ‘New York Post', the process of selling the group would however be suspended for the time being. The deadline was set for this week for the final offers, but several potential buyers would have withdrawn, according to multiple sources. According to the NYP, the process would have been affected by the group's recent warning on sales and profits for the year, on the sidelines of the publication of the first quarter. NYP sources add that the postponement could extend beyond the next quarter, to give Kohl's more time to stabilize its business. For its part, the Wall Street Journal understands that Sycamore Partners would have provided an offer of around $55 per share, while Franchise Group would have offered nearly $60 per share.