US FINANCIAL MARKET
U.S. Stocks Slide After Jobs Report – Wall Street Journal, 6/3/2022
- U.S. stocks dropped Friday after the latest employment report showed the U.S. labor market added jobs at a strong but slower clip in May.
- The S&P 500 slipped 1% in morning trading, while the Dow Jones Industrial Average fell 156 points, or 0.5%, and the Nasdaq Composite declined 1.7%. All three indexes are on track for weekly declines.
- In bond markets, the yield on the benchmark 10-year U.S. Treasury note ticked up to 2.973% from 2.914% Thursday. Yields and prices move inversely.
- U.S. employers added 390,000 jobs last month, the slowest pace of growth since April of last year, while the unemployment rate remained 3.6%. Wages grew 5.2% on the year, down from 5.5% in April.
- Economists surveyed by The Wall Street Journal expected employers added 328,000 jobs last month.
- And they saw the unemployment rate falling slightly to 3.5%, which would have matched a 53-year low and its level in February 2020 before the Covid-19 pandemic became widespread in the U.S.
- Federal Reserve officials are closely monitoring the state of the labor market as they decide how much and how quickly to raise interest rates in the coming months.
- One point of concern for officials is that a strong labor market will add to elevated inflation as competition for workers boosts wage-bargaining power.
- Fed Vice Chairwoman Lael Brainard said Thursday that she supported plans to raise interest rates by a half-percentage point at a meeting later this month and again in July.
- Shares of Tesla fell 7% after Reuters reported that Chief Executive Elon Musk is looking to cut staff at the electric-car maker. Mr. Musk earlier this week told employees to return to the office or seek employment elsewhere.
- Overseas, the pan-continental Stoxx Europe 600 was roughly flat.
- Markets in the U.K., Hong Kong and China were closed for holidays. Japan’s Nikkei 225 closed 1.3% higher, while South Korea’s Kospi added 0.4%.
CrowdStrike Posts Strong Earnings and Boosts Guidance, but the Stock Slips – Barron’s, 6/3/2022
- The security software provider CrowdStrike Holdings posted better-than-expected quarterly financial results and boosted its full-year outlook, but the stock nonetheless is losing ground in after-hours trading.
- For its fiscal first quarter, ended April 30, CrowdStrike posted revenue of $487.8 million, up 61%, and well ahead of the range of $459.9 million to $465.4 million management had told investors to expect.
- The company said annual recurring revenue was $1.92 billion, up 61%, while free cash flow was $157.5 million, up 34%.
- On a non-GAAP basis, CrowdStrike earned 31 cents a share in the quarter, ahead of the forecast range of 22 to 24 cents a share.
- Under generally accepted accounting principles (GAAP), the company lost $31 million, or 14 cents a share.
- For the July quarter, CrowdStrike is projecting revenue of $512.7 million to $516.8 million, with non-GAAP profits of 27 to 28 cents a share.
- That is ahead of the Street consensus forecasts of $509 million in revenue and profits of 24 cents a share.
- For the January 2023 fiscal year, CrowdStrike now sees revenue of about $2.2 billion, above the previous range of $2.133 billion to $2.163 billion.
- It expects profits on an adjusted basis of $1.18 to $1.22 a share, above the previous forecast of $1.03 to $1.13 a share.
Okta Stock Is Soaring. Strong Earnings Overshadowed the Recent Security Breach. – Barron’s, 6/3/2022
- Okta shares are heading sharply higher in late trading—after an 11% rally in Thursday’s regular session—on news the identity-management software company posted better-than-expected results for its fiscal first quarter ended April 30.
- The company also raised its forecast for the fiscal year.
- For the quarter, Okta posted revenue of $415 million, up 65% from a year earlier, and ahead of both the company’s guidance range of $388 million to $390 million, and the Wall Street consensus forecast at $389 million.
- Organic growth in the quarter was 39%, normalizing the company for the acquisition last year of the customer-identity-management company Auth0.
- The company said remaining performance obligations were $2.71 billion at quarter end, up 43% from a year ago.
- On a non-GAAP basis, Okta lost 27 cents a share in the quarter, narrower than the company’s forecast for a loss of 34 to 35 cents a share.
- For the second quarter, Okta is projecting revenue of $428 million to $430 million, up 36%, and ahead of the Street consensus forecast for $422 million.
- The company expects a non-GAAP loss of 31 to 32 cents a share, while the Street had been modeling a loss of 33 cents.
- For the January 2023 fiscal year, Okta now sees revenue of $1.805 billion to $1.815 billion, up 39% to 40%, with a non-GAAP loss of $1.11 to $1.14 a share.
- The company previously had projected revenue of $1.78 billion to $1.79 billion, and a loss of $1.24 to $1.27 a share.
Lululemon raises guidance as customers keep spending despite higher prices – CNBC, 6/3/2022
- Lululemon customers so far aren’t balking at higher prices on the retailer’s leggings and sports bras, Chief Executive Officer Calvin McDonald said Thursday.
- Lululemon’s revenue grew roughly 32% to $1.61 billion from $1.23 billion a year earlier.
- Same-store sales, which track revenue online and at Lululemon stores open for at least 12 months, rose 28% from the prior year. Analysts had been looking for an increase of 20.4%, according to StreetAccount estimates.
- Women’s sales grew 24% on a three-year basis, and men’s grew 30% versus 2019 levels, the company said.
- The retailer reported net income in its fiscal first quarter of $190 million, or $1.48 per share, compared with net income of $145 million, or $1.11 a share, a year earlier.
- For the second quarter, Lululemon expects revenue to be in the range of $1.75 billion to $1.78 billion, topping analysts’ expectations for $1.71 billion.
- Excluding the gain on the sale of an administrative office building, adjusted earnings per share are expected to be in the range of $1.82 to $1.87, ahead of analysts’ expectations for $1.77.
- Lululemon sees sales in fiscal 2022 in a range of $7.61 billion to $7.71 billion, up from a prior forecast of $7.49 billion to $7.62 billion. Analysts were looking for $7.54 billion, according to Refinitiv data.
- The company expects to earn, on an adjusted basis, between $9.35 and $9.50 per share, up from a prior range of $9.15 to $9.35. Analysts were looking for per-share earnings of $9.28.
American Airlines bumps up revenue forecast on robust travel demand – Reuters, 6/3/2022
- American Airlines has become the latest U.S. carrier to lift its forecast for quarterly revenue, another sign that pandemic-weary travelers were shrugging off rising airfares to plan more leisure trips.
- The Fort-Worth, Texas-based airline said on Friday it expected revenue for the three months ending June to rise between 11% and 13% over pre-pandemic levels, compared with its prior view of a 6% to 8% increase.
- American Airlines said it expected fuel expenses to average between $3.92 and $3.97 per gallon in the second quarter, up from its previous forecast of $3.59 to $3.64 per gallon.
- The higher revenue, however, should more than offset the increased costs, it said.
- Struggling with a staff shortage, the carrier also said it expected capacity in the second quarter to be at the low end of its prior guidance range.
Tesla Pauses Hiring as Musk Aims for 10% Staff Cut, Reuters Says – Bloomberg, 6/3/2022
- Tesla Chief Executive Officer Elon Musk said the electric carmaker needs to cut staff by around 10%, noting he had a “super bad feeling” about the economy, according to an internal email seen by Reuters.
- The email, titled “pause all hiring worldwide,” was sent to Tesla executives on Thursday, according to the report.
- Tesla had not been signaling a slowdown, with two newly opened vehicle assembly plants, record global sales volume in its most recent quarter and a prediction from Musk for “substantially higher” growth later this year.
- Tesla, which has EV factories in the US, China and Berlin, employs around 99,290 staff worldwide, so culling 10% of jobs could equate to losses approaching 10,000 people.
Boeing’s CEO Sees at Least Two-Year Wait on Designing New Jetliner – Bloomberg, 6/3/2022
- Boeing won’t launch a new jetliner any time soon to address Airbus’s widening sales lead in the narrow-body market, Chief Executive Officer Dave Calhoun said.
- Prominent customers like Air Lease Corp. founder Steven Udvar-Hazy have been calling on Boeing to get moving on the mid-sized aircraft family Calhoun tabled two years ago. But there are no leaps in engine technology in sight to propel jetliner sales, and Calhoun said he isn’t willing to bet an expensive new development program on the current generation of turbofans.
- The Boeing chief is counting on new digital tools to revolutionize how aircraft are designed, built and tracked over decades in the commercial market, concepts the company has touted for at least five years.
- It will take “at least a couple of years before I’m confident that those tools are tested and mature enough to implement on the next airplane,” Calhoun said, citing an internal review he’d attended Thursday. “When that happens, then we design the next airplane. We don’t do it the other way around.”
US ECONOMY & POLITICS
Employers Added 390,000 Jobs in May; Unemployment Steady at 3.6% – Wall Street Journal, 6/3/2022
- The U.S. economy added jobs at a solid pace in May, extending the labor market’s long stretch of gains.
- Employers added 390,000 jobs last month, the Labor Department said Friday. The unemployment rate held at 3.6%, slightly above where it stood in February 2020, when the Covid-19 pandemic became widespread in the U.S.
- Wages grew 5.2% in May from a year ago, the department said, down from 5.5% in April.
- Wages grew 0.3% in May from the previous month, matching April’s gains. That is a slower pace than last year’s average, suggesting that the fierce competition for workers is starting to cool.
- Roughly 330,000 people joined the workforce in May and the labor-force participation rate, which measures the share of people working or looking for work, ticked up to 62.3% from 62.2% in April.
US Services Gauge Retreats as Business Activity Growth Slows – Bloomberg, 6/3/2022
- Growth at US service providers moderated in May to the softest pace in over a year, reflecting a pullback in a measure of business activity that suggests persistent supply constraints.
- The Institute for Supply Management’s gauge of services decreased to 55.9 last month from 57.1 in April, according to data released Friday.
- The gauge of business activity — which parallels the ISM’s measure of factory production — declined 4.6 points to a two-year low of 54.5 last month. However, the index of new orders, another gauge of demand, climbed in May to 57.6.
- The ISM survey showed the index of prices paid by service providers eased to a still-elevated reading of 82.1, while the employment index edged higher.
- The group’s measure of order backlogs slumped 7.4 points to 52, suggesting supply is moving more in line with demand.
Social Security Reserves Expected to Be Depleted in 2035, Year Later Than Prior Projection – Wall Street Journal, 6/3/2022
- The rapid economic recovery from the brief recession caused by the Covid-19 pandemic has helped bolster the finances of Social Security, though the program still faces stark long-term challenges, the latest government projection found.
- In an annual report released Thursday, trustees for the Social Security Trust Funds said they anticipate that the program’s combined reserves will be depleted in 2035, one year later than projected last year.
- Stronger-than-expected economic growth since last year has generated more in payroll taxes, which provide much of the funding for Social Security.
- People are also seeking the program’s disability payments at a lower rate.
- Once Social Security’s reserves run out, revenue will pay for roughly 80% of scheduled benefits, according to the report, unless Congress steps in.
- Social Security’s cost exceeded its income in 2021, a pattern that the trustees expect in all future years.
US Crackdown on Forced Labor in China Risks Further Supply Chaos – Bloomberg, 6/3/2022
- Pandemic and war have upended American supply chains. The next shock may come from the US campaign against human-rights abuses in China.
- A law due to take effect June 21 will bar imported goods partly or wholly made in the Chinese manufacturing hub of Xinjiang — unless companies can prove the products have no ties to forced labor.
- Passed unanimously by Congress, and with strong support from unions and activists, it aims to make sure that there’s no place in the US economy for merchandise made by workers languishing in detention camps.
- For US consumers already beset by decades-high inflation, stringent policing of the new law could mean another wave of shortages and price hikes. Businesses such as Apple and Nike lobbied on the legislation last fall.
- US officials have identified a wide range of goods that touch on Xinjiang at some point during their journey along supply chains. They range from gloves and sneakers to auto parts and remote-controls for televisions.
- The region is also the world’s top producer of polysilicon, a metal used in solar panels. That’s one reason why some of Biden’s climate advisers joined economic aides in seeking to narrow the scope of products under the legislation, according to people familiar with the internal discussions.
As Shanghai reopens, California ports prepare for cargo surge – Reuters, 6/3/2022
- California port leaders expect imports to rise as Shanghai, home to the world’s busiest seaport, emerges from a two-month COVID-19 lockdown.
- The question is whether that release of pent-up goods will again swamp West Coast ports that have recently emerged from the pandemic’s massive cargo wave, they and other experts said.
- The Port of Shanghai was open during the city’s shutdown, but cargo flows still slowed.
- Area factories that make everything from Tesla electric vehicles to Apple laptops ran out of components and quarantines idled some truckers.
- “We will have some form of a surge, given the delay of cargo volume from Shanghai and China overall,” Mario Cordero, executive director of the Port of Long Beach, said on the sidelines of a Reuters Events logistics conference in Chicago.
- “To what extent that surge will be remains to be seen,” Cordero said.
EUROPE & WORLD
Euro zone May business growth robust but outlook darkens – Reuters, 6/3/2022
- Euro zone business growth was robust in May but is at risk of a slowdown from soaring living costs, supply chain disruptions and uncertainty surrounding Russia’s invasion of Ukraine, a survey showed.
- S&P Global’s final composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, fell to 54.8 in May from April’s 55.8, just shy of a preliminary 54.9 estimate.
- A PMI covering the bloc’s dominant services industry dropped to 56.1 last month from 57.7, below the 56.3 flash estimate.
- But the PMI suggests this demand is starting to wane and the services new business index fell to 55.0 from 56.6.
- The composite future output index fell to 59.9 from 60.5, one of its lowest levels since the pandemic took hold.
Turkish inflation soars to 73%, highest since 1998 – Reuters, 6/3/2022
- Turkey’s annual inflation rate jumped to a 24-year high of 73.5% in May, fueled by the war in Ukraine, rising energy prices and a tumbling lira — though the figure was slightly lower than economists had feared.
- The latest figure surpassed the 73.2% touched in 2002 and is the highest since October 1998, when annual inflation was 76.6% and Turkey was battling to end a decade of chronically high inflation.
- Nevertheless, the consensus forecast was for annual inflation to rise to 76.55%.
- Month-on-month consumer prices rose 2.98%, the Turkish Statistical Institute (TUIK) said on Friday, compared to a Reuters poll forecast of 4.8%.
Russia limits exports of noble gases, a key ingredient for making chips – Reuters, 6/3/2022
- Sanctions-hit Russia has limited exports of noble gases such as neon, a key ingredient for making chips, until the end of 2022 to strengthen its market position, its trade ministry said on Thursday.
- Exports of noble gases, which Russia used to supply to Japan and other countries, will be allowed only with special state permission until Dec. 31, the Russian government said on May 30.
- The move will provide an opportunity to “rearrange those chains that have now been broken and build new ones,” Deputy Trade Minister Vasily Shpak told Reuters via the ministry’s press service on Thursday.
- Russia accounts for 30% of the global supply of three noble gases – neon, krypton and xenon, according to the ministry’s estimate.
- Stephen Douglas, U.S. politician, died. (1861)
- Maj. Edward White became the first U.S. astronaut to walk in space, during the Gemini 4 mission. (1965)
- The world’s worst oil spill occurred when an exploratory oil well, Ixtoc 1, blew out, spilling over 140 million gallons of oil into the Bay of Campeche off the coast of Mexico. (1979)
- Chinese army troops head to Beijing to crush student-led pro-democracy demonstrations. (1989)