A crucial jobs report
The US labor market appears to be slowing. But is the economy still strong enough to avoid a recession, as Fed Chairman Jay Powell argues? That’s the big question hanging over today’s payrolls, which are due to be released at 8:30 a.m. Eastern time.
Employers added about 180,000 jobs last month, economists predict. If correct, those numbers would be well below the average of 345,000 per month in the first quarter.
Forecasters have repeatedly underestimated the strength of the post-pandemic job market. They have undershot payroll 12 consecutive times, assuming that companies would stop hiring if the Fed raised interest rates to contain inflation. Instead, employers have added about 4.5 million jobs since the central bank began raising interest rates in March 2022. That comes despite waves of layoffs in the technology and retail sectors and a banking crisis that has led to the collapse of three regional lenders since March.
Another hot jobs number could still affect the Fed’s interest rate policy. The Fed indicated Wednesday’s rate hike would be its last for now, but the central bank is committed to reducing inflation to its target of 2 percent. It has decided to bring prices under control, “even at the expense of broader macro conditions, particularly the still-tight labor market,” Vanguard chief economist Joe Davis wrote in a note ahead of today’s report.
Keep an eye on wages. The Labor Department’s labor cost index recently showed that wages rose above expectations last quarter, a factor that could push inflation higher. So far, Davis said, the Fed has failed to “get a pay cut.”
HERE’S WHAT HAPPENING
Goldman Sachs is under investigation for his work for Silicon Valley Bank. The Wall Street giant disclosed in a filing that authorities are investigating it in part because of advice it gave the lender to sell a large portfolio of securities at a loss. Within days, the SVB had collapsed, leading to a bigger crisis for regional banks.
Ed Sheeran wins major copyright infringement lawsuit. The British musician’s hit “Thinking Out Loud” was not a rip-off of Marvin Gaye’s “Let’s Get It On,” a New York federal court ruled. The verdict is seen as a victory for songwriters fearing an outbreak of copycat copyright lawsuits.
New York and California are investigating the NFL. State attorneys general have opened investigations into the league over employment discrimination and unequal pay following a 2022 report in The Times about the league’s treatment of women workers. The union says it is cooperating.
Berkshire Hathaway investors converge in Omaha. Shareholders are expected to question Warren Buffett and his lieutenants about the company big bets on oil and on his”favorite childthe auto insurer Geico, at the conglomerate’s annual investor day on Saturday. Berkshire’s stock was essentially flat last year, but outperformed the S&P 500.
Clarence Thomas and his wife gain more control over the finances. The Supreme Court judge did not disclose that billionaire Republican donor Harlan Crow paid his grandnephew’s school fees, according to a ProPublica Research. Separately, The Washington Post reported that a conservative judicial activist arranged to pay Mr. Thomas’s wife, Ginni Thomas, for consulting work, but left her name off the paperwork.
Short sellers in the picture while regional banks falter
Shares in a group of closely watched regional lenders are recovering in premarket trading this morning, led by PacWest and Western Alliance, after getting beaten up on Thursday. But analysts warn that the upheaval is far from over, especially as short sellers continue to circle.
Shares of PacWest and Western Alliance plummeted even as the lenders opened their books to show that their deposit base was relatively healthy. Their finances are not the concern, analysts say. Since the fall of Silicon Valley Bank in March, the sector has experienced a crisis of confidence, raising the risk that falling stock prices will trigger another round of bank runs.
From Wall Street to Washington, short sellers are scrutinized. These investors, taking advantage of the declining share price of companies they target, have earned about $7 billion by 2023 betting against regional banks, according to data from S3 Partners. “The other frightening thing is that the attacks are looking increasingly speculative, but at risk of self-fulfillment,” Jim Reid, head of global fundamental credit strategy at Deutsche Bank, wrote in an investor note Friday.
White House press secretary Karine Jean-Pierre told reporters Thursday that the Biden administration was closely monitoring “the short-selling pressure on healthy banks.”
Wall Street wants more. Wachtell Lipton Rosen & Katz, a leading law firm that has represented companies experiencing short-seller attacks like the Adani Group, urged the SEC to reinstate a 2008 emergency rule that imposed a 15-day short-selling ban on banks. The company also suggested bringing back the rise rulea trading restriction designed to limit volatile price drops. “The country needs a prompt, tailored response from the SEC to coordinated brief attacks that jeopardize our economy,” the company wrote in a statement. And, in a letter to SEC Chairman, Gary Genslerthe American Bankers Association urged the regulator to “consider all of its existing tools” to protect banks from short sellers.
Mr. Gensler has vowed to closely monitor any market misconduct. But a spokesman for the agency said the SEC is not considering any measures to limit short selling.
The FDIC reportedly wants major banks to pay. The agency will introduce one in the coming days new set of fees intended to supplement the deposit insurance fund depleted by the bank runs at Silicon Valley Bank and Signature Bank in March, according to Bloomberg. Banks with less than $10 billion in assets would be exempt from payment.
Nelson Peltz, the activist investor and CEO of Trian Fund Management, has another idea for replenishing the fund: Clients with more than $250,000 in deposits must pay an insurance premium, he told The Financial Times.
“I think DeSantis would make a great president. If he is the Republican nominee, I will strongly support him in 2024… But I worry that focusing on the awakening issue as ground zero is not enough.”
— Peter Thielthe tech tycoon and prominent Republican donor, advises Florida Gov. Ron DeSantis to campaign on economic policy rather than “identity politics” when running for the White House.
Apple defies the doomsayers
Apple beat its first-quarter earnings estimates thanks to rising iPhone sales, expanding its reach into major emerging markets and dealing with supply chain disruptions.
It wasn’t all good news: Revenues fell for the second straight quarter, just the third time in a decade that the company has posted back-to-back declines. But shares are up more than 2 percent in premarket trading after the company announced a $90 billion share buyback program and increased its dividend by 4 percent.
New markets and services led to growth. Sales in the US and China fell, but Apple’s finance chief Luca Maestri said growth in India, Indonesia, Latin America and the Middle East helped the company “offset some macroeconomic challenges.”
India is a particular focus. Apple has expanded production, opening its first retail store in the 1.4 billion country last month. Executives mentioned India 20 times on a conference call with analysts, and Tim Cook, Apple’s CEO, called it a priority. “There are a lot of middle class people coming and I really feel that India is at a tipping point,” he said.
Mr. Cook had little to say about artificial intelligence. The Tech earnings season has been dominated by questions about how AI fits into companies’ growth plans. Compared to Microsoft and Google, Apple has revealed much less about its vision for the technology. Mr Cook recognized the enormous potential but warned that it was necessary to be “deliberate and thoughtful” in how AI was implemented. “And there are some issues that need to be resolved,” he added.
What now? The company is reportedly trying to diversify its supply chain outside of China and is expected to unveil its much-anticipated augmented reality device at its developer conference next month.
READING THE SPEED
Offers
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Silver Lake reportedly raised its bid Software AG after Bain Capital made a rival bid. (Bloomberg)
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Alibaba is reportedly considering one First public offering in the US for its non-Chinese e-commerce business. (Bloomberg)
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Toronto-Dominion Bank and First Horizon killed their proposed $13.4 billion merger after struggling to win over regulators. (WSJ)
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Warner Bros. Discovery shares fell in premarket trading after the media giant reported a larger than expected quarterly loss. The good news: It expects its streaming business to turn a profit by the end of the year. (CNBC)
Policy
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The Supreme Chief of Intelligence, Avril Haines, warned that China and Russia would try to take advantage of US debt default. (C-SPAN)
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President Biden will appoint General Charles Q. Brown Jr., the Chief of Staff of the Air Force, as the country’s highest-ranking military officer. (NYT)
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Hedge fund billionaire Louis Spek was awarded $203 million in a long-running defamation suit against a disgraced Canadian fashion executive. (FT)
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