Market 05/03: Signs of cooling in the labor market

Labor report (NFP): Job growth lowest in 6 months - Unemployment rate rises

Job growth much lower than expected in both Nonfarm Payrolls NFP and Household Survey: Labor demand has eased

• Nonfarm Payrolls (NFP) increase +175,000 jobs in April, nearly half from previous month (315,000) and lowest since October 2023.

• This figure also more than 2 standard deviations (2x sigma) below average forecast of +240,000.

  • …(outside 95% confidence interval ~ meaning ~95% of forecasts wrong)

• Increase mainly from full-time jobs.

  • Part-time jobs declined significantly.

• Job growth continues to concentrate in sectors services such as: Education and health (+95,000), Transportation & warehousing (+22,000),…

  • Sector Information Technology and Business Services declined the most.

  • Employment Government only increased +8,000, lowest since December 2021.

• Household survey also shows jobs only increased +25,000, sharp drop from 498,000 in March.

Unemployment rate rises to highest since early 2022 - Workers struggle to find new jobs

• Unemployment rate rises from 3.8% to 3.9%=, - highest since January 2022 - higher than expected.

• Long-term unemployment rate (> 27 weeks) remains stable.

• Both permanent job losers (permanent job) and temporary layoffs followed an upward trend in April.

• Although unemployment rate increased, labor force participation rate unchanged at 62.7%.

  • Of which women rose to 57.7% - highest since Covid.

• Prime-age labor force participation rate (25-54 years old) rebounds to the highest level in 7 months at 83.5%.

Wage growth slows as labor demand eases

• Average hourly earnings fall to +3.9% YoY (< forecast 4% and prev 4.1%), lowest since June 2021.

• On a monthly basis, average hourly earnings also rose more slowly at +0.2% MoM (< estimates & prev month +0.3%).

Markets react strongly: expectations for Fed to cut rates soon as labor market weakens.

• Probability of rate cut in September this year rises to 53% after the jobs report.

• Expected number of cuts increases to 2 times this year (vs 1 previously).

• 10-year Treasury yield falls below 4.5%.

• Dow Jones futures rise more than 500 points.

• Notably, JPY (vs USD) value rises significantly.

  • Suspicions that Fed and BOJ communicated in advance about US labor situation — hence BOJ didn't intervene strongly to save the Yen earlier.

    

Fed official Bowman's remarks:

• Ready to raise rates if inflation slows or eases.

• Still sees some inflation risks.

• Expects inflation to decline with steady rates.

Services PMI falls in April - Business activity at 4-year low

Services sector growth shows signs of slowing:

• S&P Global Services PMI falls to 51.3, lowest in 5 months.

• ISM Services PMI drops sharply to 49.4 (< previous 51.4 and expected 52) - lowest since Dec 2022.

Demand is weakening as:

• New orders drop to 52.5 - lowest since end of 2022.

• Employment falls for 3 consecutive months to 45.9.

• While prices paid surge to 59.2.

• Additionally, manufacturing growth rate also slows.

→ GDP grows at modest annualized pace of 1.5% QoQ through current Q2.

Apple ER: Announces largest share buyback in history of $110 billion

• Revenue: down -4% YoY, reaches 90.8 billion USD (beat estimates by 0.2 billion USD).

  • Services: up +14% YoY, reaches 23.9 billion USD.

  • Product sales (iPhone, Mac, iPad,…): -10% YoY, reaches 66.9 billion USD due to post-Covid supply issues.

    • Mac sales: up +4% YoY, reaches 7.45 billion USD, but still below 2022 peak.

      • … thanks to upgraded M3 chip MacBook Air models in March.

• Operating margin: 31% (up +1% YoY).

• EPS: 1.53 USD (beat estimates by 0.03 USD).

• Share buyback: $110 billion (+22% YoY).

Crypto market: Coinbase reports profit surge thanks to Bitcoin

• Coinbase Q1 revenue reaches 1.64 billion USD. Trading revenue reaches 935 million USD, up over 100% YoY.

  • Coinbase stock up ~32% YTD after nearly 5x gain in 2023.

Other news:

1. SEC shuts down Trump Media's auditor on fraud suspicions, affecting over 1,500 businesses.

   • The company has agreed to pay a $12 million fine.

2. Amgen shares surged after the announcement of a weight loss drug trial.

   • Causing shares of rivals Eli Lilly and Novo Nordisk to plunge.