Jobs Day, Roaring Kitty's Livestream, GameStop Reports, A 'Perplexing' Rate Cut
Stand aside for the BLS and the Roaring Kitty. Like it or not, if you don't trade off of these jobs numbers, the high-speed, keyword-reading algorithms certainly will.
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This day has arrived!
For many, or should I say for most, this means that May "jobs day" is here as the Bureau of Labor Statistics will publish the results from their more often than not inaccurate labor market surveys for the month.
For others, this means that today at noon ET, Keith Gill, aka "Roaring Kitty" will return to his YouTube channel for the first time in roughly three years to do a livestream broadcast. Gill had been the unofficial champion of the meme stock/short squeeze trading craze during the pandemic era and has recently returned, at least to "X" or the social media platform formerly known as Twitter, sparking renewed interest in "meme" stocks.
This renewed interest has been especially focused on GameStop GME where Gill, or the Kitty has through social media, implied that he has a very large, long side equity/options position in the name. GameStop traded up 47.45% to close at $46.55 during the Thursday regular session on the news of Gill's expected return to his YouTube channel. As we pass the zero-dark hours, I can see GME trading up another 34% or so, trading with a $62 handle.
GameStop was expected to report their first fiscal first-quarter financial results next week. Wall Street was expecting a GAAP loss per share of $0.10 on revenue of just a little less than $1B. However, the firm, which does not do earnings "pressers," just posted a GAAP loss of $0.12 per share on revenue of $881.8M, both numbers landing well short of consensus view.
For those who simply knock GameStop as some silly company that owes its valuation to folks like Gil and short interest that accounted for just shy of 30% of the stock's entire float as recently as mid-May, I would be slow to discount this company for those reasons.
Yes, valuation is off the charts for this name, but we are still talking about a company whose core business has been dwindling for years but can still drive revenue expectations of a rough $4.75B for the current year.
Let's also not forget the pristine balance sheet. GameStop did burn some cash (almost $170M) over the past 12 months ahead of this release, but ended the first quarter with a cash position just shy of $1B on the books and almost no debt.
Even without an improving business, GameStop is not going away any time soon.
Here Comes the BLS!
Never mind that these monthly surveys are known as much for their enormous "after the fact" and often downward revisions than anything else, it's "jobs day" for May. Like it or not, if you don't trade off of these numbers, the high-speed, keyword-reading algorithms that perversely control what passes for price discovery in this modern era certainly will.
With that in mind, and this week's JOLTS Report for April, the ADP Employment Report for May and this week's print for Initial state-level Jobless Claims all hinting at a labor market slowdown, we look for seasonally adjusted (heavily salted and peppered) non-farm payrolls of $182K. This would be a slight uptick from what was initially reported for April. Economists also see the unemployment, underemployment and participation rates all holding steady at 3.9%, 7.4% and 62.7%, respectively.
Just as important will be the data for wage growth, which has been running at a 3.9% annual rate and for the average full-time workweek, which has been running at a historically low 34.3 hours. Keep in mind that when an employee is downgraded by their employer from full-time to part-time, that does not work against this average, so this number is a little misleading.
Why This Matters
With the FOMC set to decide on monetary policy next week, this data, accurate or not, will matter in terms of the Fed's perception of labor market strength and the ability of wage growth to drive inflation. With the mostly weaker-than-expected macro of late, futures markets have been pricing in an earlier first rate cut for the Fed than we had seen a few weeks back.
Certainly, in addition to outright consumer-level inflation, and the level of economic activity, the Fed is now facing external pressure from other G-7 central bankers to ease policy. This week, both the Bank of Canda and the European Central Bans made first rate cuts for this cycle to their respective benchmark rates. The Bank of Canada, in a much smaller economy, has done a more effective job of fighting inflation than has the Fed, but the rate cut made on Thursday morning by the ECB is one of a perplexing nature.
The ECB did take down rates just a peg, despite an upward pop in eurozone inflation for May, while that central bank increased its expectations for inflation for 2024 and 2025, though to still below 2% levels. In an odd twist of fate, the euro strengthened against the U.S. dollar on Thursday after the ECB rate cut.
What happened was that many traders were left feeling that the ECB acting and guiding in somewhat divergent fashion confirms that global central banks, probably including the Fed, are adjusting to the reality that national public sector debt loads are at this point insurmountable and the only way to make any progress on the fiscal front may be to allow or even covertly encourage above-target inflation for an extended period.
To act in a more responsible way would be to address these modern-day realities through elevated interest-rate schedules coupled with an aggressive style of austerity in forward-moving fiscal policy. Understand that the right way to go about this, due to the legislative recklessness of the recent and not-so-recent past would be painful and would cause some short-to medium-term economic instability. So, instead, the can will be kicked as far down the road as it can go. Instead of a quicker, but painful period, the patient will likely be bled to death over a much longer time frame due to a lack of political will.
3 Things Readers Should Know
-- The Atlanta Fed revised their GDPNow model for the second quarter back up to growth of 2.6% (q/q, SAAR) after the U.S. trade deficit for April printed at less awful levels than expected. The more accurate GDP models provided by the New York and St. Louis Feds will be revised over the weekend. That will be interesting.
-- On Friday morning, ahead of the Jobs numbers, futures markets trading in Chicago are pricing in a 68% probability for a first rate cut as soon as September 18. My personal feeling is that next week is the latest that the Fed can cut without being perceived as being less than independent from the current administration and attempting to impact the election. My view is that if there is no move made next week (a 98% likelihood), then the Fed will have to wait until November 7th to take action.
-- On Thursday, a Morgan Stanley released report implied that Taiwan Semiconductor TSM could be seriously considering increasing production fees for leading AI chip designer Nvidia NVDA. Nvidia, Morgan Stanley estimates, will account for 10% of TSM's full-year 2024 revenue. Other major TSM customers that could be impacted by increased production prices would be Apple AAPL, Advanced Micro Devices AMD, Broadcom AVGO, and Qualcomm QCOM.
Marketplace
Equity and Treasury debt markets more or less took Thursday off ahead of the Jobs surveys. Losers beat winners at the NYSE by a roughly 7 to 6 margin and at the Nasdaq by about 3 to 2. That said, advancing volume took a 53% share of composite NYSE-listed trade and a 51.2% share of composite Nasdaq-listed trade, while seven of the 11 S&P sector SPDRs shaded green for the session.
Discretionaries XLY led to the upside at +0.76%, while last week's winners, the Utilities XLU, led the losers at -1.02%.
Reminder: Nvidia NVDA will split 10 for 1 after the close of business this evening.
May Employment Situation (08:30 ET)
Non-Farm Payrolls: Expecting 182K, Last 175K.
Unemployment Rate: Expecting 3.9%, Last 3.9%.
Underemployment Rate: Expecting 7.4%, Last 7.4%.
Participation Rate: Expecting 62.7%, Last 62.7%.
Average Hourly Earnings: Expecting 3.9% y/y, Last 3.9% y/y.
Average Weekly Hours: Expecting 34.3, last 34.3 hours.
Other Economics (All Times Eastern)
10:00 - Wholesale Inventories (Apr-rev): Flashed 0.2% m/m.
13:00 - Baker Hughes Total Rig Count (Weekly): Last 600.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 496.
15:00 - Consumer Credit (Apr): Last $6.27B.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly earnings scheduled.
At the time of publictaion, Guilfoyle was long XLU, NVDA, AAPL and AMD.
