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What will January’s blowout jobs report mean for monetary policy? (0:19) Watch the SLOOS report in wake of regional bank jitters. (2:38) Sports books are already Super Bowl 58 winners. (5:45)
The following is an abridged transcript:
The top story to look out for this week
Fed speakers unleashed.
Federal Reserve members emerge from the quiet period following last week’s meeting faced with a January blowout jobs report. Investors will be looking for what it means for rate trajectory with a labor market that added 355,000 to payrolls last month.
Fed Chairman Jay Powell appeared to shut the door on a March rate cut in his press conference, saying it was unlikely. The payrolls gain and a rise in average hourly earnings of 0.6%, twice the consensus, would seem to have bolted that door, if not nailed crooked pieces of wood across it with a spookily scrawled keep out warnings.
Wells Fargo economists say the employment report “clearly reinforces the view that a rate cut is not coming at the March meeting.”
“The doves on the FOMC should feel comforted that the labor market is not on the precipice of a material deterioration in the near term, while the hawks likely will feel emboldened to wait for at least a few more inflation data points to ensure that the inflation genie is back in the bottle.”
Steven Blitz, economist at GlobalData TS Lombard, goes further. He says a hike won’t happen, but the question “is worth pondering, based on the idea that sustained growth lays waste to the Fed’s ardent defense of 50BP as the neutral real funds rate.”
“If we raise the neutral rate back to 2%, the long-time normal and what forward markets anticipate two years out, then 5.5% is spot on IF one assumes 4%” is the non-accelerating inflation rate o f unemployment – or NAIRU.
“Should inflation start to rise, the NAIRU presumption likely needs to change. Raise it to 4.5% and the target funds rate jumps to 6.2%.”
But traders are saying “not so fast.”
Fed funds futures are back to pricing in nearly a 40% chance the FOMC will cut by a quarter point next month. That’s up from a post-payrolls nadir of below 20%.
Seeking Alpha analyst Lawrence Fuller, who leads The Portfolio Architect Investing Group, argues that the decrease in average work hours counters the income created by new jobs and higher wages, which means the jobs report is “not inflationary at all.”
Powell kicks off the Fed speaker parade Sunday night, with “60 Minutes” airing an interview.
On Monday, Atlanta Fed President Raphael Bostic will speak. Cleveland Fed President Loretta Mester is up Tuesday and Wednesday brings board member Michelle Bowman and Richmond Fed President Thomas Barkin, who also speaks Thursday.
As well as monetary policy, the Fed is responsible for financial stability. And there were some wobbles last week in regional banks after New York Community Bancorp (NYCB) and Japan’s Aozora (OTCPK:AOZOY) jolted the market with warnings of surprise losses due to higher loan-loss provisions.
Both banks singled out problem with U.S. commercial real estate. Although the selloff abated Friday during the U.S. session, NYCB ended the week off more than 40%, Aozora shed 30%, and the SPDR S&P Regional Banking ETF (KRE) lost 7%, its worst week since June.
That means in a week that’s light on the economic calendar, attention will be on the Fed’s January Senior Loan Officer Opinion Survey – or SLOOS – which is due Monday. The SLOOS will provide insight on the tightness of lending and details on commercial real estate lending in particular.
Looking to earnings for the week, we hear from two Seeking Alpha subscriber favorites: Palantir (PLTR) and Alibaba (BABA).
Palantir reports Monday postmarket and is expected to post year-over-year growth on the top and bottom lines. But overall growth is expected to lag rivals Snowflake (SNOW) and Databricks, due to “widening cracks in the firm’s U.S. government, international government, and international commercial businesses”, according to investment firm William Blair.
Alibaba (BABA) reports Wednesday. Seeking Alpha analyst KM Capital says the “prevailing pessimism, evident in 23 downward EPS revisions over the last 90 days, suggests a conservative outlook. While generally not favorable for investors, this pessimism may already be factored into the stock price, potentially paving the way for positive surprises.”
Among other big earnings reports
Monday sees McDonald’s (MCD) and Caterpillar (CAT). Ford (F) and Eli Lilly (LLY) weigh in on Tuesday, along with Snap (SNAP), which reportedly started a new wave of layoffs last Friday. Disney (DIS), PayPal (PYPL) and Uber (UBER) are scheduled for Wednesday. Thursday sees Take-Two Interactive (TTWO) and Duke Energy (DUK). And PepsiCo (PEP) and AMC (AMC) finish out the week on Friday.
Looking to news this weekend
U.S. and U.K. forces carried out new attacks against militia in Yemen. That came after the U.S. carried out attacks on what the AP says was “dozens of sites manned by Iran-backed fighters in western Iraq and eastern Syria.”
Despite multiple rejections and even after its most recent increased offer, Dazheng Group reiterated its commitment to a $29.50 per share offer for Hollysys Automation (HOLI). The buyer consortium led by Dazheng said it will still be committed its $29.50 bid even if shareholders reject Hollysys’ planned $26.50 per share sale to Ascendent Capital at a vote on Feb. 8.
And Lynas Rare Earths (LYSCF) said it had confidential talks with MP Materials (MP) regarding a possible deal, but those talks are “not ongoing.”
“Lynas is implementing a strong organic growth plan” the company said in a statement on Saturday. “In addition, Lynas continues to seek opportunities to use our proven expertise to build scale, improve market functioning and add value for shareholders.”
Among our spotlight Seeking Alpha stories
Super Bowl 58 is setting up to be a jackpot for the Las Vegas Strip and sports betting operators.
The perfect mix of sports betting legalization in new states and a high-interest game featuring the Kansas City Chiefs and San Francisco 49ers has some forecasters predicted legal wagers could top $1.35 billion across the 39 regulated markets. Notably, this year’s Super Bowl will mark the first time that legal Super Bowl bets will be made in Florida.
Other states in the betting mix this year include Massachusetts, Kentucky, Maine, Vermont, and Nebraska. Legal Sports Report says that depending on how those tickets settle, U.S. sports betting operators stand to win north of $100 million.
Proposition bet volume on the Super Bowl has soared to record levels already at major sportsbooks, with action involving Taylor Swift and Chiefs star Travis Kelce a significant factor. In general, sportsbooks have a higher hold rate on prop bets than normal action on the Super Bowl.
Amazon (AMZN) Executive Chairman Jeff Bezos has adopted a plan that would let him sell as many as 50 million shares before early next year, the company disclosed in its annual report.
And Exxon (XOM) and Chevron (CVX) said they plan to aggressively ramp up production from the Permian Basin this year, a potential early sign that U.S. oil output may exceed expectations in 2024 as in 2023.
Chevron (CVX) said it is targeting 10% growth in the Permian this year, which would set it on pace to pump 1 million barrels/day from the region in 2025. Exxon will become far and away the basin’s biggest producer once it completes its purchase of Pioneer Natural Resources by mid-year; excluding Pioneer, Exxon plans a nearly 7% boost to 650,000 barrels/day this year.
Wrapping up in the Wall Street Research Corner
J.P. Morgan is highlighting companies with profit warnings in what has, so far, been a negative earnings season, as far as growth is concerned.
78% of the S&P 500 companies that have reported beat their EPS estimates. But 7 out of the 11 sectors are printing negative or flat EPS growth.
Among big-name warnings are FedEx (FDX), Nike (NKE), Humana (HUM) and Mobileye (MBLY).
