Wall Street recovers, after ISM services and despite employment strength

Wall Street, which had corrected quite a bit yesterday after good US private employment figures measured by ADP, feeding the thesis of continued monetary tightening by the Fed, is recovering quickly this Friday after the government report on the employment situation. It should be noted that the ISM for US services published today came out much lower than expected, which slightly lowers expectations for monetary tightening. The S&P 500 now gains 1.52% to 3,865 points, the Dow Jones 1.55% to 33,441 points and the Nasdaq 1.38% to 10,447 points. A barrel of WTI crude oil rose 1.9% on Nymex today to $75.1. The ounce of gold advanced 1.5% to $1,867. The dollar index lost 0.7% against a basket of currencies.

According to the US Labor Department’s report on Friday, nonfarm payrolls for December totaled 223,000, compared with a FactSet consensus of 205,000. The unemployment rate in the US fell to 3.5%, while the consensus of domestic economists was 3.7%. Thus, this unemployment rate is back to pre-pandemic levels and the lowest since 1969!

For the previous month, November, job openings were revised up slightly, to 256,000 versus 263,000 previously. The unemployment rate for the month of November was revised to 3.6%, against the previously estimated 3.7%.

Average hourly wages in December rose 0.3% from a month earlier, versus the +0.4% consensus. It rose 4.6% over the year against the 5% market consensus. Private sector job creation in December was 220,000, versus the consensus of 183,000 and 202,000 a month earlier. Manufacturing job creation was 8,000, versus the 10,000 expected by economists on average.

Yesterday, the latest private employment numbers from ADP had already come in strong, with 235,000 creations reported, versus a consensus of 145,000 measured by FactSet and a level of 127,000 a month earlier. In fact, however, these figures are supported by small and medium-sized businesses, while large companies with more than 500 employees lost 151,000 jobs in December. SMEs with 1 to 19 employees created 65,000 jobs, compared to 130,000 for companies with 20 to 49 employees, 159,000 jobs for companies with 50 to 249 employees, and 32,000 jobs for groups of 250 to 499 employees. By industry, construction (41,000 jobs), professional and corporate services (52,000), education and health services (42,000 jobs), and entertainment and hospitality (123,000 jobs) created the essentials for December jobs.

US industrial orders for November 2022 fell 1.8%, compared to the previous month, against a FactSet consensus of -0.5% and after a revised increase of +0.4% for the previous month. The previous estimate for October was +1%.

The US services ISM index for December 2022 fell to 49.6, versus the market consensus of 55 and 56.5 a month ago. Therefore, this indicator falls below the fatal point of 50, signaling a contraction of activity.

According to the CME Group’s FedWatch tool, the current probability of a 25 basis point rate hike on February 1, after the next monetary meeting, stands at about 77%, compared with a 23% probability of a 50 basis point move. The current range is from 4.25 to 4.5%. The same tool indicates that peak rates could be reached in May between 5 and 5.25%, obviously depending on the famous “future developments” regarding inflation and the economy in general…

Values

Tesla (-3%) is still lagging Wall Street, at a two-year low. The price cuts of Elon Musk’s group are increasingly worrying operators. The Texas electric car giant, which lost two-thirds of its Wall Street value last year, is reportedly cutting prices for Model 3s and Model Ys in China, according to Reuters. Citing the company’s Chinese website, Reuters reports that Tesla has lowered its starting price for the Model 3 to 229,900 yuan (about $33,400) from 265,900 yuan, and lowered it for the Model Y to 259,900 yuan from 288,900 yuan. Tesla cut prices for its cars in China for the second time in less than three months, amid a dim outlook for demand in the world’s biggest auto market. The latest cut, along with October price cuts and various incentives of up to 10,000 yuan given to Chinese buyers over the past three months, represents a cumulative 13% to 24% reduction in Tesla prices since September.

Tesla would also cut its prices in Japan and South Korea. In Japan, Tesla is said to have cut the prices of the Model 3 and Y by about 10%, the first drop since 2021. The price of the rear-wheel drive Model 3 is now 5.369 million yen (about $40,000), down from the yen that previously according to Reuters.

Bed Bath & Beyond (-17%) continues the decline of the stock market. According to the Wall Street Journal, citing sources familiar with the matter, the retailer is considering filing for bankruptcy, opting for Chapter 11 of the US bankruptcy law, within weeks. The WSJ report followed a morning business update in which BB&B indicated it had substantial doubts about its ability to continue operations…

Pfizer ( stable ), the US pharmaceutical giant, is said to be considering options for its early-stage rare disease programs and assets, Barron’s says. According to the Barron’s report, the company allegedly told employees that it would seek to “outsource” most of its early-stage rare disease programs in neurology and cardiology, and the gene therapy programs that have not yet done so. subject to clinical trials. The article quotes a company spokesperson as saying that Pfizer is considering many options regarding these assets and programs. However, treatments for rare diseases that are more advanced in terms of development will not be affected.

CytomX Therapeutics surged more than 48% on Wall Street on Nasdaq after Moderna announced a licensing agreement with the cancer specialist to develop treatments based on messenger RNA for a wide range of diseases.

Southwest Airlines (+1%), the US low-cost carrier, will launch a complete review of its operations after canceling thousands of flights last month. The incident could result in a loss of up to a billion dollars in revenue, according to a union representative quoted by Reuters. Raymond James estimates this could cut fourth-quarter revenue growth by more than half.

Apple rebounded 2%, while Foxconn, its Taiwanese subcontractor, reported a recovery in production despite falling revenue. Recall that Apple’s stock has been heavily corrected in recent weeks, on concerns about demand and production concerns at the giant Chinese factory of Foxconn in Zhengzhou – the famous ‘iPhone City’ with activity weighed down by health restrictions.

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