Market 05/02: High labor costs warn of persistent inflation

Labor market: businesses limit layoffs - weekly jobless claims remain low

Initial jobless claims lower than expected

• Initial jobless claims last week generally not fluctuating much, reaching 208,000 (expected: 212,000, previous: 207,000)

  • Fed Chair emphasizes that rising unemployment rate will be a signal for policy easing.

• Continuing claims also remain stable, reaching 1.774 million.

ChallengerGray report: Number of jobs cut in April decreases

Businesses announced cuts 64,789 jobs in April this year, down from previous month 90,310, down -3.3% YoY. 

• The most heavily affected sector is auto manufacturing following Tesla's announcement of cutting 14,000 global staff.

• No job cut announcements in Real Estate sector.

Manufacturing: orders increase - labor costs still high but labor productivity not as expected

Factory orders increase in March

• March factory orders continue to increase +1.6% MoM and up +1.7% YoY (after February data revised down).

• This is the 17th downward revision in the past 22 months.

• Core factory orders (excluding transportation costs) also increased +0.5% MoM (> previous +0.2%).

• March durable goods orders surge +2.6% MoM, highest since November 2023 (previous month 0.7%).

  • Non-defense goods excluding aircraft unchanged month-over-month.

• Material costs drop sharply in the past 2 weeks, mainly due to crude oil prices.

Labor costs rise sharply - but productivity limited

• Nonfarm labor productivity increases +0.3% QoQ - lower than forecast (+0.5%) and much lower than previous month (3.5%).

• While labor costs increase +4.7% QoQ (> expected 4% & previous 0.4%).

→ Sign of persistent inflation due to rising wage inflation.

Earnings reports: Qualcomm, Novo Nordisk

Qualcomm ER: Raises revenue forecast thanks to AI development on smartphones

• EPS: 2.44 USD (> estimate 2.32 USD).

• Revenue: 9.40 billion USD (> estimate 9.34 billion USD).

  • Handset sales up +1% YoY to 6.18 billion USD, smartphone market expected to recover post-Covid.

Guidance:

• Q3 Revenue: 8.8 billion - 9.6 billion USD (estimate 9.05 billion USD).

• EPS: 2.15 - 2.35 USD (estimate 2.17 USD).

• Raises dividend to 0.85 USD.

Novo Nordisk ER: Profit beats estimates thanks to Wegovy weight loss drug sales double

• Revenue: up +22% YoY, reaches 9.39 billion USD.

  • Wegovy weight loss drug revenue up >2x to 9.38 billion kroner.

    • Novo Nordisk became Europe's most valuable company last year thanks to weight loss drugs.

• North America sales up +35% YoY, with over 130,000 prescriptions, 25,000 people starting each week.

• Net profit: up +28% YoY, reaches 3.65 billion USD.

FY2024 Outlook:

• Sales growth 19 - 27% at constant exchange rates.

• Operating growth: 22 - 30% (prior guidance 21 - 29%).

Crypto market: Bitcoin drops, funds net outflows

• Funds sell Bitcoin en masse, token price drops sharply below 60,000 USD.

  • Grayscale sells 167 million USD.

  • BlackRock sells 37 million USD.

  • Fidelity sells 191.1 million USD.

  • ARK sells 98.1 million USD.

  • Bitwise sells 29 million USD.

  • Franklin sells 13.4 million USD.

• MicroStrategy to launch decentralized identity (ID) solution on Bitcoin, named MicroStrategy Orange.

• Andreessen Horowitz fund (a16z) buys 90 million USD OP tokens (Optimism).

Other news:

1. Google lays off 200 core employees, including key teams and engineers, while transferring some positions to India and Mexico.

2. Inflation pressure on reduced consumer spending begins to reflect on major consumer brands:

   • Starbucks, Pizza Hut, KFC, McDonald,... report declining sales.

   • Coca-Cola: purchasing power of low-income people declines.

   • ER of Costco, Target,... will need to be watched to assess current purchasing power.