Wall Street Breakfast: Jobs And Trade

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Removing a chunk of trade uncertainty that had been hanging over the market, top U.S. and Chinese officials have agreed to strengthen cooperation for a phase one trade deal (see more below). U.S. stock index futures rose another 1% on the news, building on a strong week that saw the Nasdaq Composite yesterday reenter positive territory for 2020. Yields on the 2-year Treasury note meanwhile hit a record low of 0.129% as investors digested the prospect of a surge in debt supply. An ugly jobs report is also on tap, though the market has so far blown past weak data amid progress toward COVID-19 treatment, loosening restrictions and reopening of economies.
Go deeper: 'The Bears Are Fleeing For Cover' writes Bill Gunderson.

Worst since the Great Depression

The April non-farm payrolls report is expected to show that a record 22M jobs were lost as the U.S. shut down to stop the spread of the coronavirus, driving the unemployment rate to 16%. Putting it in perspective: The U.S. economy has never lost more than 2M jobs in a single month, and while the unemployment rate reached 25% in 1933, it got there much more slowly. Due to the scale and speed of the job losses, some see a quicker recovery as things reopen, though others, like J.P. Morgan's Bob Michele, predict it will take 10-12 years to get unemployment back to pre-pandemic levels.

Trade deal optimism

Top trade negotiators for the U.S. and China talked by phone overnight, pledging to create "governmental infrastructures necessary to make the phase one trade deal "a success." "In spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner," read an emailed statement from the USTR. The call alleviated tensions seen earlier in the week after President Trump threatened to "terminate" the pact if China failed to buy promised goods and services from the U.S.

Shanghai Disneyland sells out

Tickets for the earliest days of Shanghai Disneyland's reopening have sold out following a three-month shutdown due to the coronavirus outbreak. The Chinese government has asked Disney (DIS) to cap attendance of the re-opened park at 30% of capacity, or roughly 24,000 people, as it adjusts to new safeguards like social distancing, masks and temperature screenings. In an earnings call on Tuesday, executives said that shuttered parks would cost Disney roughly $1B in profits.

Resuming car production

Michigan Governor Gretchen Whitmer will allow the state's auto manufacturing facilities to reopen on Monday, making it possible for suppliers to begin restarting plants ahead of Ford (F), General Motors (GM) and Fiat Chrysler (FCAU). The Detroit Three intend on resuming operations a week later, while the last U.S. automaker, Tesla (TSLA), is turning the lights on as soon as today. The latter's Fremont plant has been idled since March 23 due to shutdowns aimed at limiting the spread of COVID-19.
Go deeper: California begins to reopen today.

Neiman Marcus files for bankruptcy

With no debt relief in sight, Neiman Marcus Group (NMG-OLD) has officially filed for bankruptcy on the heels of similar filings by J.Crew and Canadian shoe retailer ALDO Group. "Like most businesses today, we are facing unprecedented disruption caused by the COVID-19 pandemic, which has placed inexorable pressure on our business," said CEO Geoffroy van Raemdonck. Neiman Marcus has changed hands among private equity firms over the past 15 years, culminating in a $6B takeover by Ares Management (ARES) and the Canada Pension Plan Investment Board.

Zoom security

New York Attorney General Letitia James has announces an agreement with Zoom Video (ZM) concerning the videoconferencing company's security practices. This puts "protections in place so that Zoom users have control over their privacy and security, and so that workplaces, schools, religious institutions, and consumers don’t have to worry while participating in a video call." Following the news, the NYC Department of Education reversed its Zoom ban, saying the company made several fixes to address the department's concerns.
Go deeper: Zoom's first acquisition is security startup Keybase.

Alphabet pulls plug on 'smart city' concept

It's the latest retrenchment by Alphabet (GOOG, GOOGL) under new CEO Sundar Pichai as the company ditched plans to develop a "smart city" along Toronto's waterfront. Costs, real estate pressure and economic uncertainty were all reasons cited for the decision. The 12-acre project, under Alphabet arm Sidewalk Labs, had been a favorite of Google co-founder and former CEO Larry Page, who envisioned an energy-efficient neighborhood where sensors tracked residents and responded to their needs.

Why was everyone coming to the office?

Facebook (FB) is extending a policy that will give employees the option to work remotely through the end of 2020, while Mark Zuckerberg acknowledged that the majority of workers are able to do so. Facebook will still reopen most of its offices on July 6 for staff that need to come in, as well as other employees who choose to return to the office. For many industries, however, will work-from-home become a standard job feature in the post-pandemic world?

What else is happening...

Lyft (LYFT) joins Uber (UBER) with mandatory mask policy.

Bitcoin (BTC-USD) is a hedge against "inflation" - Paul Tudor Jones.

Shopify (SHOP) falls after announcing share offering.

PG&E (PCG) hit with record $1.9B penalty wildfire penalty.

Wendy's (WEN) wants answers on high beef costs.

Thursday's Key Earnings

Booking Holdings (BKNG) -0.3% AH posting 51.2% drop in gross bookings.
Bristol-Myers (BMY) -0.5% despite affirming guidance.
Dropbox (DBX) +4.6% achieving first quarterly profit.
Grubhub (GRUB) -11.7% on restaurant challenges.
Main Street Capital (MAIN) -1.4% AH as distributable NII fell Y/Y.
Roku (ROKU) -10.2% AH amid rising costs.
Teva Pharma +10.2% (TEVA) as cash flow ops rose 172%.
Uber Technologies (UBER) +6.1% AH with executives seeing a ride recovery.

Today's Markets

In Asia, Japan +2.6%. Hong Kong +1%. China +0.8%. India +0.6%.
In Europe, at midday, London closed. Paris +0.8%. Frankfurt +0.8%.
Futures at 6:20, Dow +1.1%. S&P +1.1%. Nasdaq +1%. Crude +2.8% to $24.21. Gold +0.4% to $1732.30. Bitcoin +5.6% to $9849.
Ten-year Treasury Yield -2 bps to 0.61%

Today's Economic Calendar

8:30 Non-farm payrolls
10:00 Wholesale Trade
1:00 PM Baker-Hughes Rig Count

Companies reporting earnings today »

Comments

[YourHuckleberry]

The Chinese government "asked" Disney to cap attendence? Really? That is how your going to frame it? What a joke!

[fujilomi]

Hoping for no fade into the close, pretty good week at the present.

[fujilomi]

Thinking about buying some SH at 2999, but then again, the market can stay irrational longer than you can stay solvent. I guess I will just be satisfied with making money with small positions. Better than losing money for sure.

[Invader from Earth]

The jobs report was ugly and expected. All the Business Networks were rolling out the black bunting. The truth is far from this MSM BLEAK outlook! The stock decline and global shutdown was intentional to thwart a global pandemic. This shutdown is passing and the economic recovery will be swift. This is NOT to be compared to the depression of the last century. Note to the MSM: “KNOCK IT OFF!”

[SB Pirate]

QQQ Stuff: It looks like the Short Term will hit the upper B-band at or near the open and VIX will hit it's lower B-band at the same time. Time to be contrarian by my guidelines and take some profits or maybe even place a hedge.

[Richard Carleton]

I am convinced that the economy will be weaker at least until herd immunity or a vaccine occurs because of a decline in productivity. But even if this pandemic stopped miraculously today, likely a change in values, e.g. willingness to be as indebted, will prevent the economy from fully recovering. Of course, how the market responds is an entirely different issue.

[scotch64]

@Richard Carleton , the economy is overbought and oversold . Reality has been set upon by a virus ....the true plague is the wake-up call to society, is how much we can do without ....and be just fine ...actually better off with sooooo much less materialism!

[Richard Carleton]

Scotch - If you are right, and a bit less materialism is one of the products of this pandemic, the market should decline. For now, the liquidity provided by the Federal Reserve has won out in the stock market, if not on Main Street.

[User 50085325]

A couple of facts we can confirm: We are, and or were, in a Bear Market. We have never experienced an accelerated collapse in employment such as what is occurring now.
"J.P. Morgan's Bob Michele, predict it will take 10-12 years to get unemployment back to pre-pandemic levels".

Bear Market Rallies lasting 30 Days or longer.

Date Days Increase
Nov. 13, 1929 148 46.8%
Dec. 16, 1930 72 25.8%
Oct. 05, 1931 35 30.6%
Oct. 10, 1932 32 19.6%
Jul. 21, 1933 35 16.9%
Oct. 19, 1933 110 37.3%
Nov. 24, 1937 48 17.5%
Nov. 24, 1937 223 62.2%
May. 19, 1947 393 23.9%
Feb. 12, 1957 153 15.9%
Apr. 04, 2001 47 19%
Sep. 21, 2001 105 21.4%
Jul. 23, 2002 30 20.7%
Nov. 20, 2008 47 24.2%

Average 106 27.3%

I am neither Bear nor Bull. My experience is that you can profit in both if you can define the fundamentals and understand the Market's direction. However, IMO - this rally just doesn't seem fundamentally sustainable.

[Invader from Earth]

Sorry to see the retail NM shutter. I am reminded that our equities have always been built on American Capital and NOT debt. Shame on any equity that utilizes any significant amount of debt.

[JohnP]

So we should all be ashamed of our mortgage?

[blueline]

"Tickets for the earliest days of Shanghai Disneyland's reopening have sold out"

This is an example of why the doom and gloom crowd are wrong.

Disney Springs in Florida will start reopening on May 20th.

Restaurants in Florida are at capacity or better. A local Mexican restaurant on Cinco de Mayo was clearly over the 25% limit.

[SB Pirate]

Tickets sold out at 30% capacity limit which appears to lose money for the park. Granted it is a step in the right direction but it's not sustainable. So what is the time line for getting to 100% capacity ?

[blueline]

Theme parks are cash cows. At 30% they probably will at least break even because they will have a 70% reduction in labor costs.

The time line for 100% is not written in granite and will fluctuate but it should be in a few months.

[Jacob Notowitz]

30% will NOT cause 70% reductions in labor cost. Not even close. Rides being manned, food service people there no matter what. Disney will be lucky if 10-15% less staff, but probably not even that much cost savings. I wouldn't be surprised if they need at least 50% attendance to break even.

[Gene Jaquet]

Trade deal optimism: now that is good news. Last thing we need is a shot in the foot.

[DanielGannon1]

Fiat-Chrysler is reopening manufacturing...because they weren't forcing cars on dealers before. I'm sure there's lots of pent up demand :D

Interesting tidbit from the virus, pickup trucks outsold cars for the first time ever.

[pat45]

when is FED going to bail out the states who are shouldering these huge losses

[18214212]

@pat45

Here is the breakdown of the $2.2T CARE Act which includes plenty for state and local govts :

$560B - Individuals $1200-3400 checks
$500B - Big Corporations to keep their employees on board
$377B - Small Business with Payroll Protection Program
$340B - State and local governments
$154B - Public Health
$44B - Education other

www.npr.org/...

And the above doesn't even include the $540B expansion done on CARE.

Reluctant states/cities cannot remain in endless economic shutdown and have to reopen in a safe and responsible manner in order to have organic revenues again, plain and simple.

[blueline]

Get their states open and the losses will stop.

[JCCIII]

@pat45 You do realize, don't you, that it was the state governors who shut these states down (reducing tax revenue and increasing state costs) and it is the governors who hold the authority for starting them back up?

[Seekingbetaguy]

Chair of Minnesota FED says 16% unemployment is really 22%. I imagine Laughin' Larry Kudlow is in makeup right now getting ready for his "these are very encouraging numbers" close up.

[Miami 305]

Half the unemployment % will jump2 employed as soon as the economy fully opens up....
Which will b good

There is a percentage of jobs gone forever we will c when the economy fully opens what that will b

[blueline]

People in Florida have been filling 2 and 3 times for unemployment insurance. They aren't trying to cheat the system they are just frustrated with the unemployment office. Most people still haven't gotten their first check.

[SB Pirate]

Last night I spoke with a friend who is a manager in what many would consider a critical business. They have been working 10-12 hrs./day since CV19 started vs 8-9 hrs/day BCV19 and are looking for employees 24/7. However, they do not want to talk about how hard it is to hire anyone to fill menial positions and even positions that require training because of the $600/wk. payment for not working. Previously an entry level worker was being hired at $9-$10 hr. This is in Florida. As I suggested weeks ago when it was announced the $600/wk will cause unemployment issues going forward regardless. I suspect we will see 10%ish unemployment indefinitely and then it will morph into Guaranteed Basic Income. So by next year how much will it cost to get someone to show up for work above $15 hr? Imo, business costs are going to explode! And yes I know the $600/wk is suppose to expire in August but as long as unemployment is still high and it will be in August the case will be to extend it. I hope I am wrong but I do not think so!

[NilSatis]

Ride recovery for Uber? Economies everywhere still sputtering and many of the drivers would have gone through a very painful time with no income and still having to pay car payments etc. Why at AH?

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