Wall Street wrapped up the short but volatile week on a modestly upbeat note ahead of Friday’s monthly jobs report. Stocks had been wobbly earlier in the week in response to signs of a slowing economy, including weak data on private payrolls and job openings. That marked a change from previous sentiment when investors cheered weak economic numbers in the hope that the Federal Reserve might ease up on its campaign of interest rate hikes. Now the market seems to be struggling to decide whether recession worries or rate hike worries are more meaningful to stock prices. With the exception of the Dow Jones average, the major stock market indexes ended the week lower after three consecutive weekly gains for the S&P 500 and the Nasdaq Composite. The Dow rose 0.6% for the week, while the S&P lost 0.1% and the Nasdaq tumbled 1.1%.
Surprise!
Crude is back in the news following a shock oil output cut from major OPEC+ producers. WTI crude futures (CL1:COM) surged past $81 a barrel at the open to its highest price since late January, with the May contract rallying as much as 8%, while June Brent crude (CO1:COM) opened at its best level in nearly a month, advancing by the same percentage to over $86/bbl. The output reduction will be led by OPEC kingpin Saudi Arabia, with total production cuts totaling nearly 1.2M bbl/day from May and till the end of 2023. Russia’s recent production cuts of 500K barrels per day were also extended, and add to the 2M bpd that were taken offline by OPEC+ in October. Together, the cuts mean that about 3% of the world’s oil has been removed from the market in the past half a year, helping sustain prices following sanctions on Russian crude oil. (308 comments)
Mixed jobs report
Stock markets were closed yesterday for Good Friday, but the U.S. non-farm payrolls report showed that the labor market remained tight, cementing expectations of a 25-basis point rate hike by the Federal Reserve in May. Nonfarm payrolls rose 236K in March, just under the 240K expected and less than the 326K added in February (revised from +311K). Jobs growth was well below the average monthly gains of 344K over the past six months, the Bureau of Labor Statistics said. Labor force participation rate edged up to 62.6% from 62.5% in February and exceeded the 62.5% consensus. But it remains below its pre-pandemic level of 63.3%. “The decline in the unemployment rate and gain in the labor participation rate suggests the job market remains strong and locks in a 25-basis point hike in May,” said SA Author Michael Kramer of Mott Capital Management. Traders agree. The probability of a 25-basis point hike increased to 67% from a 49.2% chance on Thursday, Fed Funds futures data showed. The 10-year Treasury yield rose 12 basis points to 3.41% in yesterday’s shortened trading. U.S. stock futures ended in the green – S&P futures +0.2%, Dow +0.2%, Nasdaq +0.1%. “With next week’s core inflation number likely to come in at 0.4% month-on-month, the odds must favor a final 25-basis point hike in May,” said ING economists. “However, economic challenges are mounting with higher borrowing costs and reduced credit flow heightening the chances of a hard landing.” (183 comments)
The doves fly
Are central bank rate hikes coming to an end? It sure is Down Under – at least for now. The Reserve Bank of Australia is pausing its aggressive tightening cycle, holding rates on Tuesday for the first time in almost a year. Policymakers kept the official cash rate at 3.60%, taking a key timeout to size up the latest market happenings and economic developments. “The decision to hold interest rates steady this month provides the board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty,” explained Philip Lowe, Australia’s central bank governor. “Some further tightening of monetary policy may well be needed.” While keeping the door open for a return to rate hikes, growth and stability concerns might soon overtake inflation threats in terms of central banks’ top priorities. (11 comments)
TSLA
Analysts are still arguing over whether Tesla (TSLA) beat or missed delivery expectations for Q1, but the EV maker delivered a record 422,875 vehicles (here’s a quarterly tally by model). “We continued to transition towards a more even regional mix of vehicle builds, including Model S/X vehicles in transit to EMEA and APAC,” noted the company on the production strategy. While Tesla has been charging forward with EVs, Wood Mackenzie says its Solar Roof technology has fallen far short of installation targets, and the latest developments are sure to add more fuel to the constant Tesla debate. Note that Tesla (TSLA) cut prices on all U.S. models late Thursday, according to published reports citing the automaker’s website. This is the second broad-based U.S. price cut of all models this year and the fifth move to cut prices. Read why Victor Dergunov, leader of investing group ‘The Financial Prophet’, is bullish on Tesla, while Danil Sereda, investing group leader of ‘Beyond the Wall Investing’, is bearish on the stock. (548 comments)
Legal shield
Johnson & Johnson (JNJ) unit LTL Management, which was created to file for bankruptcy as a way to handle lawsuits related to its talc baby powder, refiled for Chapter 11 bankruptcy protection after its first attempt was thwarted. LTL also offered to pay $8.9B over 25 years to resolve all current and future talc claims, higher than the $2B offer in its first bankruptcy filing in 2021. J&J clarified that the second bankruptcy filing is not an admission of guilt and it stands behind the safety of its talc products. J&J is facing multiple lawsuits over allegations that its baby powder products contain asbestos, which is known to cause various cancers. Note that J&J will discontinue talc-based baby powder products globally this year, and switch to an all cornstarch-based portfolio. (44 comments)
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