Along with inflation, the labor market is the main determinant of U.S. monetary policy. If it remains strong, the Fed will have no reason to alter its current stance on rate cuts. It means the economy can sustain high rates, which doesn't sit well with the equity markets.
Economists were betting on the creation of an average of 160,000 jobs in the US economy in December, for a stable unemployment rate of 4.2%. So, it was a big surprise to see 256,000 new nonfarm payrolls in December, while the unemployment rate dropped to 4.1%. The US job market is stubbornly resilient, which is great news for job seekers, but not for investors. Rate cuts are getting further and further away. Futures on Wall Street plunged after the data, with the Nasdaq 100 down 1.2%, the S&P 500 down 1% and the Dow Jones down 0.8%.
Economists were also predicting a slowdown in average hourly earnings growth to a modest +0.3% for December, or a 4% increase year-on-year. And lo and behold, the data matched expectations perfectly. With the monthly employment figures now neatly filed away, investors can shift their gaze to the upcoming corporate earnings season. Next week, the financial heavyweights of Wall Street will take center stage. On Wednesday, we'll see the curtain rise with performances from the likes of JPMorgan Chase, Wells Fargo, Goldman Sachs, BlackRock, and Citigroup.
Yesterday, Wall Street took a day off to pay respects to former US President Jimmy Carter. But while the stock market paused, the bond markets were anything but idle. They continue to shift and shuffle in anticipation of the United States' next economic chapter. The expectation of prolonged higher US interest rates is giving the dollar a boost. Add to that the looming specter of future trade barriers and a dash of megalomaniac imperialist rhetoric, and you have a recipe for a robust dollar. This dollar strength is complicating economic and monetary strategies worldwide. It's a throwback to the famous words of John Connally, Nixon's Treasury Secretary, who once told anxious European officials, "The dollar is our currency, but it's your problem."
Emerging economies are feeling the pinch as they grapple with rising financing costs, capital flight, and soaring import expenses, all of which are fueling inflation. These challenges are mirrored in their stock markets, which have just entered a correction phase. As of yesterday, the MSCI Emerging Markets index has tumbled over 10% from its last peak in September 2024, meeting the technical definition of a market correction. The Chinese economy is also under pressure. In recent years, Beijing has been content to let the yuan weaken to boost export competitiveness. However, the currency's recent decline has prompted a change in strategy. In a surprising move, the Bank of China announced a temporary halt to its government bond purchases, citing insufficient supply. However, the real motive is clear: to stabilize the yuan. This decision is already showing positive effects, with Chinese bond yields recovering slightly from their lows. Despite these efforts, China continues to face a bleak economic outlook and struggles to implement effective stimulus measures. Adding to its woes, the United States is tightening the screws with increased export restrictions, making life even more challenging for Beijing.
In the Asia-Pacific region, the week ended rather poorly. Japan lost 0.9% for a third session in the red. China also posted another decline, the 6th of the year in 7 sessions. South Korea, India and Taiwan limited their declines to 0.2%. In Australia, Sydney was down 0.4%. In Europe, the Stoxx Europe 600 is down 0.2%.
Today's economic highlights:
US weekly jobless claims and December employment figures are on the calendar today https://www.marketscreener.com/stock-exchange/calendar/economic/
- Dollar: EUR 0.9704 GBP 0.8119
- Ounce of gold: USD 2679
- Brent crude: USD 79.65 WTI: USD 76.60
- 10-year US bond: 4.70
- Bitcoin: USD 95,000
In corporate news:
- Nvidia criticized the Biden administration's plan to impose new export restrictions on AI chips.
- Kroger to pay $110 million to settle Kentucky lawsuit over opioid epidemic.
- Clear Channel Outdoor sells its Europe-North segment to Bauer Media for $625 million.
- Tammy Romo, CFO of Southwest Airlines, retires on April 1.
- Tilray Brands reported a wider net loss in Q2 with sales of US$210.95 million, despite increased revenue in its beverage, international cannabis, and wellness segments, and announced a US$25 million synergy plan for its beverage business while reaffirming its fiscal year 2025 guidance.
- Elon Musk is suing OpenAI over its for-profit shift, while Tesla launches a redesigned Model Y in Asia and China and recalls 239,000 vehicles due to rear-view camera issues.
- Shell and Chevron have commenced oil production at the Whale floating production facility in the Gulf of Mexico, which is expected to reach a peak output of 100,000 barrels of oil equivalent per day.
- Bank of America, involved in various financial activities, has been appointed alongside UBS by Japan's NTT for a $1 billion data center REIT IPO in Singapore slated for the second half of 2025, while also planning to increase investment banker bonuses by 10% in 2024 and overseeing consumer investments exceeding $500 billion.
- Constellation Brands reported a modest rise in non-GAAP EPS for fiscal Q3, though its net sales of $2.46 billion fell below the expected $2.53 billion.
- Constellation Energy acquired Calpine Corp. in a deal valued at $26.6 billion, although one report mistakenly cited the purchase price as $16.4 billion.
- Mersana Therapeutics' lead candidate, emiltatug ledadotin, demonstrated clinical activity in multiple tumor types in a phase 1 study, while their breast cancer treatment XMT-1660 received positive study results and additional FDA Fast Track designations, leading to a rise in the company's shares.
- Walgreens Boots Alliance surpassed Q1 earnings estimates with $0.51 per share, outperforming the expected $0.36, despite a fall in adjusted net earnings, while maintaining their annual forecast.
- BlackRock is leaving the Net-Zero Asset Managers initiative due to legal inquiries, confusion over practices, and pressure from Republican politicians, while also seeking to extend the FDIC bank oversight deadline to March.
Today's main earnings reports: Constellation Brands, Delta Air Lines, Walgreens Boots...
Analyst recommendations:
- Amd (Advanced Micro Devices): Goldman Sachs downgrades to neutral from buy with a price target reduced from USD 175 to USD 129.
- Antero Resources Corporation: Gerdes Energy Research LLC downgrades to neutral from buy with a target price raised from USD 39 to USD 41.
- Appfolio, Inc.: KeyBanc Capital Markets downgrades to sector weight from overweight.
- Atlassian Corporation: BMO Capital Markets upgrades to outperform from market perform and raises the target price from USD 255 to USD 292.
- Bath & Body Works, Inc.: Wells Fargo upgrades to overweight from equalweight with a target price raised from USD 42 to USD 48.
- C.h. Robinson Worldwide, Inc.: Raymond James upgrades to outperform from market perform with a target price of USD 123.
- Capri Holdings Limited: Wells Fargo upgrades to overweight from equalweight with a target price raised from USD 20 to USD 28.
- Devon Energy Corporation: Zacks upgrades to neutral from underperform with a price target raised from USD 29 to USD 37.
- Eqt Corporation: Gerdes Energy Research LLC downgrades to neutral from buy with a target price of USD 53.
- Everest Group, Ltd.: BMO Capital Markets upgrades to outperform from market perform and raises the target price from USD 372 to USD 453.
- Extra Space Storage Inc.: Scotiabank upgrades to sector perform from sector underperform with a target price of USD 167.
- Ftai Aviation Ltd.: Wolfe Research upgrades to outperform from peerperform with a target price of USD 190.
- Gartner, Inc.: Barclays upgrades to overweight from equalweight with a price target raised from USD 525 to USD 600.
- Gilead Sciences, Inc.: Morgan Stanley upgrades to overweight from equal weight with a target price raised from USD 87 to USD 113.
- Hca Healthcare, Inc.: Baptista Research upgrades to buy from hold with a target price reduced from USD 424 to USD 396.
- Lennar Corporation: RBC Capital upgrades to sector perform from underperform with a target price of USD 130.
- Mcdonald's Corporation: Citi upgrades to buy from neutral with a price target raised from USD 311 to USD 334.
- Mohawk Industries, Inc.: JP Morgan upgrades to overweight from neutral with a target price raised from USD 151 to USD 161.
- Nike, Inc.: Piper Sandler & Co upgrades to overweight from neutral with a price target raised from USD 72 to USD 90.
- Nxp Semiconductors N.v.: Goldman Sachs upgrades to buy from neutral with a target price reduced from USD 260 to USD 257.
- On Semiconductor Corporation: Truist Securities downgrades to hold from buy with a target price reduced from USD 85 to USD 60.
- Revvity, Inc.: Bernstein downgrades to market perform from outperform with a target price reduced from USD 145 to USD 130.
- Ross Stores, Inc.: Wells Fargo downgrades to equalweight from overweight with a target price of USD 165.
- Snowflake Inc.: Barclays upgrades to overweight from equalweight with a target price of USD 190.
- Thermo Fisher Scientific Inc.: Bernstein upgrades to outperform from market perform with a price target raised from USD 620 to USD 630.
- Unitedhealth Group Inc.: HSBC upgrades to buy from hold with a target price of USD 595.
- Verisk Analytics, Inc.: Barclays downgrades to equalweight from overweight with a target price of USD 310.
- Yum! Brands, Inc.: Citi downgrades to neutral from buy with a target price reduced from USD 153 to USD 141.
- Haleon Plc: Morgan Stanley downgrades to equal weight from overweight with a target price reduced from USD 10.35 to USD 10.20.
- Intercontinental Hotels Group Plc: Bernstein upgrades to market perform from underperform with a target price raised from GBX 8570 to GBX 9000.
- International Consolidated Airlines Group, S.a.: AlphaValue/Baader Europe downgrades to reduce from add with a price target reduced from 3.98 to EUR 3.95.
- Reckitt Benckise: Morgan Stanley upgrades to overweight from equal weight with a target price raised from GBX 4600 to GBX 5500.