2023-07-29 07:00:00 ET
Summary
- Nonfarm Payrolls consensus figures for July are uncertain and changing frequently, with an average estimate of about 200,000 jobs added.
- Investors will be watching earnings reports from Apple, Merck, and Starbucks, looking for strong services growth, stability in key segments, and new strategies or initiatives.
- Labor negotiations, strikes, and unions could impact the economy by affecting wage inflation, productivity, and the path of interest rates.
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Catalyst watch for the week of July 30. Seeking Alpha Managing News Editor Kim Khan on what investors can expect when the nonfarm payroll report is released . (00:31) Julie gives a brief earnings preview of Apple (AAPL), Merck (MRK), and Starbucks (SBUX). (02:27) What impact does a labor strike have on the economy and how did Jerome Powell address this in his press conference? (04:13)
Julie Morgan: Kim, next week, it's the beginning of the month. So obviously, we're talking about Nonfarm Payrolls, right?
Kim Khan: Yeah. You think they'd give us maybe a little break after this past week when we had all these earnings and the Fed and GDP . But nope, we're just going to go right back into the swing of things. We're looking at the labor market, which still is one of the most important puzzle pieces to where rates are heading and probably in turn where the market is heading.
JM: Okay. So tell me this, is there a consensus out yet?
KK: If you're looking at Nonfarm Payrolls for July payrolls consensus, it's tough to come by, actually. And this isn’t new to me because for a long time I've been doing this. We've always had consensus estimates a number of places online that you could find them and just say, like up to 10 or more days in advance of the number. Now it’s like we're not getting consensus figures out until like two or three days sometimes before the number comes out and it changes a lot.
So what you're seeing is a lot more, maybe uncertainty, and a lot more reluctance for the economists to nail down their figure without getting more data. I mean, totally understandable that they might want to hold off on their guesses until they saw what exactly the Fed said and what exactly GDP came in at, and also all the other components that go into their models.
But let's just say, they're going to cover again around an average of about 200,000. So a little more is going to be showing a strong labor market, a little less, might be a little more anemic. And then we're going to have to go through the dance of what's good and what's bad for the Fed, because make no mistake, after this last rate hike we saw this week, the Fed's still ever present in the market and people are just going to be gauging about whether or not they want to hike again. There's still now, I think, a 40% chance of another 0.25 point hike.
So then markets doesn't entirely think they're one and done. Jay Powell pushed back on saying there'd be any rate cuts this year which people were hoping maybe will be pulled forward a bit. So this is a market that's watching close to the data and still mostly watching what it means for the Fed.
JM: So let's talk now about earnings . We know that it's another busy week in earnings, next week. I checked with some of our editors at Seeking Alpha to ask them about what investors will look for from certain companies like Apple, Merck and Starbucks. And we're going to begin with Apple .
Investors are looking for strong services growth, and whether there has been a lot, a bit of a rebound in the App Store. Mac sales are also likely to be a focus, I hear, given continued weakness in the PC sector. And the iPhone is still the majority of the revenue for the company. So stability in that segment is expected.
Now, turning to healthcare. Merck investors will be paying attention to sales of its blockbuster oncology drug, KEYTRUDA . In Q1, the drug maker also raised its sales and non-GAAP EPS ranges for 2023. So investors will want to pay attention to if there are any tweaks to these figures. A highlight for Merck in Q2 was also its acquisition of Prometheus Biosciences. This is expected to close in Q3. And at this point, it doesn't look like the FTC is objecting to the acquisition. So that's something that investors should look for from Merck.
And finally, we have Starbucks. Our editor, Clark Schultz, gave me his top three things to look for. First of all, he said, look for comparable sales acceleration in China after the first full quarter of the economy reopening. Secondly, he said to look to see if transaction growth stays positive in North America to complement higher pricing. And third, he says look to see if the new CEO outlines any new strategies or initiatives on the conference call. So those are a few things to look out for from those three companies.
Now, Kim, something else that we've been talking about, I've been talking about it on Wall Street Breakfast. You've talked about it on Wall Street Lunch. UPS, Auto Workers, Yellow Corporation , unions and strikes, it's everywhere. What impact does this have on the economy? And tell me, how did this come out during Powell's Press Conference this week?
KK: Yeah, they talked about it in the Powell Press Conference. Someone tried to rope him in into commenting on what impact these labor negotiations would have as the contracts result in higher wages for workers . What impact that would have on wage inflation, which in turn could affect the economy, could inflect the path of rates.
It's a fair question and as much as that does have a big impact, because if we see a lot of new contracts coming up and giving substantial raises to workers, that will put upward pressure on inflation through the wage cost figures. But it's also an unfair question to put to Powell because he knows he can't come out and say, “Well, I don't think that the people should get paid more and it'll make my job easier”. And then I just said I don't have to worry about inflation.
In fact, I think you should pay him less. So probably he's not going to come out and say that, although that would have been exciting. It does overall, in the economy, affect both the inflation landscape and how long the Fed's going to stay higher for longer and it affects productivity. So if people are getting higher wages but productivity isn't increasing , then you've got a problem from the corporate front, but also on a global growth front.
Now, that said, I mean, growth is looking fairly strong for what people were already predicting, so it could withstand to come down a little bit on that front. But it's going to be interesting to see how these play out. I think the biggest, most interesting one might be the Auto Workers. There's a lot of tough talk coming out of the UAW on that. They just want to do a lot of long discussions. They kind of wanted to get things done or there may be a major work stoppage.
JM: I got to say, when I was listening to the Press Conference yesterday, we're recording on Thursday, so the day after the Press Conference. When I was listening to the Press Conference and one of the reporters asked that question, my ears perked up because I was like, “ooh, is he going to answer?”
KK: Yeah, I mean, he kind of gave a chuckle because he knows that that would be such a rookie mistake that he'd never live it down. But I think he does kind of appreciate the gumption of the reporters, something that you got to ask the question. I mean, might off chance get some kind of insight, but at the very least, you want to know the Fed's thinking on how the overall wage picture is, which is what he answered. And he said that the labor market is still looking a bit strong for the 2% inflation goal.
JM: Now, I wonder if possibly one of the other members of the FOMC will maybe answer the question in an indirect way whenever they start their speaker series again.
KK: Yeah, it's possible. They can have a little more freedom and they can come out and say more. And then when they leave the Fed, of course, they can say even more on TV whenever they want. But yeah, they have a little more levy and they have a refined message as well, kind of anything that Powell wants to walk back, they'll walk back for him. Everything he wants to kind of double down on because he thinks the market didn't take him seriously, they'll double down on that.
JM: Kim, is there anything else you'd like to add?
KK: Yes, and this is the great thing about working with such great people at Seeking Alpha and on the News team at Seeking Alpha. Our editor, Josh Fineman, has just sent me over the estimates for Nonfarm Payrolls for July , and the medium estimate is 190,000. So I wasn't far off with 200,000. That's what it currently stands at.
JM: 190,000. I guess we'll have to wait and see for about another week.
KK: Yeah, we can't wait.
For further details see:
Wall Street Breakfast Catalyst Watch: Jobs Report, AAPL, MRK, SBUX Preview