Premarket equities: This is how the Fed reads today’s jobs report

Premarket equities: This is how the Fed reads today’s jobs report

Premarket equities: This is how the Fed reads today’s jobs report

There are currently about two jobs available to every unemployed person, and as a result, employers have had to raise wages to attract suitable candidates.

That sounds like a good thing — and it is for Americans dealing with higher prices on everything from groceries to rent. But the Federal Reserve isn’t very happy about it. To fight inflation, it needs to cool the economy, and higher salaries do the opposite. Higher labor costs can also be passed on by companies to consumers, which means higher prices.

Why it matters: This inflation cycle – pay more and then demand more – is exactly what the Fed wants to squash. That’s why it will pay particular attention to wage growth figures in today’s jobs report. If they continue to accelerate, the central bank will have more reason to aggressively raise interest rates at its meeting later this month.

There are a number of factors that contribute to higher prices — including supply chain pressures and commodities — but wages will be the dominant driver of inflation going forward, Aneta Markowska, chief financial economist at Jefferies, told me. “Rising wages are driving a significant amount of inflation. Supply chain problems are expected to ease in the coming year, but we still have this labor problem.”

The only way to meet the Fed’s target of 2% inflation is to severely slow wage growth, she said.

Great expectations: The August top-line unemployment rate is expected to remain unchanged this month at 3.5%, close to a 50-year low. Consensus estimates also called for 300,000 new jobs, and average hourly wages are expected to rise 0.4% month-over-month.

Last month’s jobs report blew expectations out of the water. More than half a million jobs were created, most in five months. The average hourly wage grew by half a percent month-on-month.

In the weeks following the July jobs release, Fed officials took a more aggressive stance, warning that rate hikes would continue until inflation falls and warning of emerging economic “pain.”

During his Jackson Hole address last week, Fed Chair Jerome Powell cited the strong labor market as a cause for concern about inflation. “The labor market is very strong, but it is clearly out of balance, with demand for workers significantly outpacing the supply of available workers,” he said.

After the last Fed meeting in July, when the central bank raised interest rates by as much as 75 basis points, Powell told me he was closely monitoring wage growth. His ultimate goal, he said, was to cut inflation and “achieve a landing that doesn’t require a really significant rise in unemployment.” That will only be achieved by slowing down wage growth.

The takeaway: Wall Street currently estimates a 74% chance of a 75 basis point rate hike at its September Fed meeting, but there is still a lot of uncertainty about the Fed’s upcoming policy decision. A very strong jobs report could signal to the Fed that an aggressive hike in interest rates is necessary. A weak report would be another confusing data point contributing to the noise.

China needs Wall Street

The US and China have finally agreed on one of the biggest problems in global business: how to control Chinese companies listed on US stock exchanges.

Regulators from both countries announced a deal last week that would allow U.S. officials to inspect those companies’ audit documents. The breakthrough means that for now more than 160 Chinese companies have evaded the imminent threat of being kicked off the world’s largest stock market, reports my colleague Michelle Toh.
The US is wasting no time getting to those audits. Reuters reported on Wednesday that officials have opted for Alibaba (BABA), Yum China (YUMC) and other companies for a first round of inspections starting next month.

Some background: U.S. regulations state that all companies: on US stock exchanges must comply with requests to fully open their books by 2024 or they will not be allowed to trade in the United States. That is a problem for China. The country was hesitant to allow foreign regulators to inspect its accounting firms, citing security concerns. The tension has already caused some Chinese companies to withdraw from US markets.

Alibaba, whose shares have been trading on the NYSE since 2014, outlined plans this summer to upgrade its Hong Kong listing to primary status, expected to happen by the end of this year.

Why it matters: The long list of companies at risk extends beyond Alibaba to include some of China’s top tech giants such as: Baidu (BIDU)and JD.com (JD).

The approaching audit deadline has already led to a slowdown in equity offerings. US IPOs of Chinese companies have fallen significantly, dropping eight so far this year compared to 37 in the same period last year. The value of those deals has also dwindled. So far, companies have raised just $332 million through IPOs in US markets in 2022, up from nearly $13 billion a year ago.

The chances: This deal is only a first step in formalizing the audit protocol between the US and China. It is still unclear whether China will comply. Last week, SEC chief Gary Gensler warned that companies would still be ejected if their papers are not accessible to US authorities. “The proof will be in the pudding,” he said in a statement.

Goldman Sachs analysts said this week there is still a 50% chance that Chinese stocks will be taken off the market.

Either way, this is unlikely to have a major impact on other controversial issues between the US and China. But it does mean that China needs Wall Street. “The relationship between the US and China reminds me of conflict-ridden ones where at the end of the day they realize they can’t afford to get a divorce,” said Drew Bernstein, co-chair of Marcum Asia CPAs, an accounting firm for Asian companies. companies looking to enter US markets.

Anyone want to buy Zoom?

I don’t need to tell you that the boom of working from home is failing. The dust that collects on your platoon (PTON) already done.

Now the era of return to work is cornering its next victim: Zoom.

The pandemic treasure’s weak earnings outlook and the plummeting stock price raise the question of whether the video conferencing company is a one-trick pony that should be part of a larger tech company, reports my colleague Paul R. La Monica.

However, it can be difficult to find a lover.

Zoom (ZM) has to do with several bigger tech giants that already have similar products. Microsoft (MSFT) manages Teams and Skype. Cisco (CSCO) has WebEx. google (GOOG) owner Alphabet runs Meet and Chat. Apple (AAPL) has FaceTime.

That leaves four other possibilities.

meta (FB) could include Zoom in its messaging and social media apps. if Sales team (CRM) combined Slack and Zoom they would create a mega productivity platform. Oracle (ORCL), the enterprise software company, has a reputation as a serial acquirer and was looking for a way to expand into video. There is also private equity. Zoom execs would love to be released from the whims of Wall Street’s quarterly results.

For now, Zoom is keeping quiet about any acquisition prospects, or maybe it’s just quiet.

Next one

The US jobs report for August posts at 8:30 a.m. ET.

Coming next week: U.S. stock markets are closed Monday for Labor Day. We’ll take a break that day and see you back here on Tuesday.

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