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Pre-market stocks: Here’s how the Fed is reading today’s jobs report

There are currently around two jobs available for 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’s for Americans who face higher prices on everything from groceries to rent. But the Federal Reserve is not very happy about it. In order to fight inflation, it must cool the economy, and higher wages do the opposite. Higher labor costs can also be passed on by businesses to consumers, which means higher prices.

Why is this important: This inflationary cycle – pay more then charge more – is exactly what the Fed wants to crush. That’s why he’ll be paying close attention to wage growth figures in today’s jobs report. If they continue to accelerate, the central bank will have more reason to raise interest rates aggressively when it meets later this month.

There are a number of factors adding to higher prices – including supply chain and raw material pressures – but wages are the main driver of inflation going forward, I said. says Aneta Markowska, chief financial economist at Jefferies. “Rising wages are creating significant inflation. Supply chain issues should ease over the next year, but we’re still dealing with this labor issue.”

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

Great Expectations: August’s top jobless rate is expected to remain unchanged this month at 3.5%, near a 50-year low. Consensus estimates also predicted the creation of 300,000 new jobs and the average hourly wage was expected to rise 0.4% month-over-month.

Last month’s jobs report blew expectations. More than half a million jobs have been created, the most in five months. The average hourly wage rose half a percent month over month.

In the weeks following the July payrolls, Fed officials took a more hawkish stance, warning that rate hikes would continue until inflation subsides and warning of “pain “economic future.

Fed Chairman Jerome Powell cited the strength of the labor market as a cause for inflationary concerns during his speech in Jackson Hole last week. “The labor market is particularly strong, but it is clearly unbalanced, with the demand for workers far outstripping the supply of available workers,” he said.

After the last Fed meeting in July, in which the central bank raised rates by 75 basis points, Powell told me he was watching wage growth closely. His ultimate goal, he said, was to bring inflation down and achieve “a landing that doesn’t require a really significant rise in unemployment.” This is only possible by slowing wage growth.

Take-out: Wall Street is currently pricing in a 74% chance of a 75 basis point rate hike at the September Fed meeting, but there is still a lot of ambiguity surrounding the Fed’s next policy move. A very good jobs report could send a clear signal to the Fed that a hawkish interest rate hike is needed. A low ratio would be another confusing data point that adds to the noise.

China needs Wall Street

The United States and China have finally reached an agreement on one of the biggest issues in global trade: how Chinese companies listed on US stock exchanges should be audited.

Regulators in both countries announced a deal last week that would allow U.S. officials to inspect the companies’ audit documents. The breakthrough means that for now, more than 160 Chinese companies may have dodged the immediate threat of being kicked out of the world’s largest stock market, reports my colleague Michelle Toh.
The United States is quick to embark on these audits. Reuters reported on Wednesday that officials had chosen Ali Baba (BABA), yum china (YUMC) and other companies for a first round of inspections starting next month.

A bit of context: US regulations state that all companies on US stock exchanges must comply with requests to fully open their books by 2024 or they will be banned from trading in the United States. This is a problem for China. The country has been reluctant to let foreign regulators inspect its accounting firms, citing security concerns. The tension has already led some Chinese companies to pull out of US markets.

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

Why is this important: The long list of risky companies goes beyond Alibaba and includes some of China’s biggest tech giants like Baidu (BEGINNING)and JD.com (J.D.).

The impending audit deadline has already led to a slowdown in share issuance. IPOs of Chinese companies in the United States have fallen significantly, with eight so far this year, down from 37 in the same period last year. The value of these transactions also declined. So far in 2022, companies have raised just $332 million through IPOs in U.S. markets, down from nearly $13 billion a year ago.

The chances: This agreement is only a first step in the formalization of the audit protocol between the United States and China. It is still unclear whether China will actually comply. Last week, SEC chief Gary Gensler warned that companies still risk being kicked out if their documents cannot be viewed by US authorities. “The proof will be in the pudding,” he said in a statement.

Goldman Sachs analysts said this week there was still a 50% chance that Chinese stocks would be delisted.

Either way, it probably won’t have a big impact on other contentious issues between the US and China. But that means China needs Wall Street. “The US-China relationship reminds me of the adversarial relationship where ultimately they realize they can’t afford to divorce,” said Drew Bernstein, co-chairman of Marcum Asia CPAs, an accounting firm for Asian countries. . companies seeking to enter US markets.

Anyone want to buy Zoom?

I don’t need to tell you that the work-from-home boom is collapsing. The dust that accumulates on your Platoon (PTON) already done.

Now, the back-to-work era is cornering its next victim: Zoom.

The pandemic darling’s weak earnings outlook and falling stock price raise questions about whether or not the video conferencing company is a one-trick pony that needs to be part of a bigger tech company, reports my colleague Paul R. La Monica.

However, he may have trouble finding a suitor.

Zoom (ZM) has to contend with several big tech giants that already have similar products. Microsoft (MSFT) operates Teams and Skype. Cisco (CSCO) at WebEx. Google (GOOG) owner Alphabet manages Meet and Chat. Apple (AAPL) a FaceTime.

This leaves four other possibilities.

Meta (Facebook) could integrate Zoom into its messaging and social media apps. Whether Selling power (RCMP) combined Slack and Zoom, they would create a mega-productivity platform. Oracle (ORCL), the enterprise software company, has a reputation for being a serial acquirer and has been looking for a way to expand into video. There is also private equity. Zoom executives might appreciate being freed from the vagaries of Wall Street’s quarterly earnings report.

For now, Zoom remains silent on all acquisition prospects, or perhaps it is simply mute.

Next

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

Coming next week: US markets are closed Monday for Labor Day. We will take a break that day and see you here on Tuesday.

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