Omicron in retreat, but jobs may be a victim of wave: Morning Brief

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Thursday, February 3, 2022

Omicron wave retreats, leaving wreckage in its wake

Like a strong tide that crashes into a beach shore before it washes back out to sea, the Omicron variant of COVID-19 — which has spent months buffeting the global economy — is mercifully in retreat. But it’s leaving some debris in its wake.

On Wednesday, we learned that private payrolls plunged by over 300,000, according to ADP data. Yahoo Finance’s Emily McCormick reported that services jobs suffered the largest drop, led by industries most vulnerable to Omicron-related declines in foot traffic and business. Leisure and hospitality, the Achilles heels of a jobs market that otherwise remains hot, shed over 150,000 in January.

I am no fan of this particular data series, being that it’s an extremely imperfect indicator of the all important monthly nonfarm payrolls. However, the onset of Omicron has been creating lots of noise in a number of high frequency data sets — including weekly jobless claims — that are becoming more difficult to downplay.

Employers haven’t been shedding jobs en masse, and there are still far more employees voluntarily leaving their jobs for better opportunities than are being forced out.

Still, the ADP data is stoking fears over Friday’s payrolls data, and complicating the Biden administration’s ability to send a consistent message on the economy.

This week, Yahoo Finance’s Ben Werschkul reported that the White House is already “lowering expectations” about December’s jobs numbers, which may simultaneously make it harder for the Federal Reserve to kick off its interest rate hike campaign. The central bank now has to thread the needle between soaring inflation, and an economy that’s expected to lose momentum.

“If the payroll number is terrible, then you’ll see the Fed emphasize that it’s very data-dependent still,” Evercore ISI Vice Chairman Krishna Guha told Yahoo Finance Live on Wednesday.

“So we shouldn’t assume that that next hike… is set in stone. If necessary, they can even deliver the dovish hike in March,” Guha added.

One month, of course, does not make a trend. However, depending on how bad the January labor figures are — and whether that anticipated weakness carries over into February — they may have the perverse effect of temporarily boosting investor sentiment, given that the Fed’s hawkishness has put Wall Street in a particularly foul mood as of late.

Michael Pearce, senior U.S. economist at Capital Economics, noted that “with infection numbers and hospitalizations now falling in many parts of the country as quickly as they had risen, we expect a huge rebound in payrolls in February, with most of the disruption clearing by the end of the quarter.”

He added: “As a result, even a very bad January payrolls number is not going to be enough to cause the Fed to delay its planned March rate hike, though we do expect slowing economic growth this year to limit the Fed to four rate hikes, rather than the 5+ that markets are now pricing.”

By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek

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What to watch today

Economy

  • 7:30 a.m. ET: Challenger Job Cuts, year over year, January (-75.3% prior)

  • 8:30 a.m. ET: Nonfarm Productivity, fourth quarter preliminary (3.9% expected, -5.2% expected)

  • 8:30 a.m. ET: Unit Labor Costs, fourth quarter preliminary (1.0% expected, 9.6% during prior quarter)

  • 8:30 a.m. ET: Initial Jobless Claims, week ended Jan. 29 (245,000 expected, 260,000 during prior week)

  • 8:30 a.m. ET: Continuing Claims, week ended Jan. 22 (1.620 million expected, 1.675 million

  • during prior week)

  • 9:45 a.m. ET: Markit US Services PMI, January final (50.9 expected, 50.9 prior month)

  • 9:45 a.m. ET: Markit US Composite PMI, January final (50.8 expected, 50.8 prior month);

  • 10:00 a.m. ET: ISM Services Index, January (59.5 expected, 62.0 prior)

  • 10:00 a.m. ET: Factory Orders, December (-0.4% expected, 1.6% final)

  • 10:00 a.m. ET: Factory Orders Excluding Transportation, December (0.4% expected, 0.8% final)

  • 10:00 a.m. ET: Durable Goods Orders, December final (-0.9% expected, -0.9% prior)

  • 10:00 a.m. ET: Durable Goods Excluding Transportation, December final (0.4% prior)

  • 10:00 a.m. ET: Capital Goods Orders Nondefense Excluding Aircrafts, December final (0.0%)

  • 10:00 a.m. ET: Capital Goods Shipments Nondefense Excluding Aircrafts, December final (1.3%)

Earnings

Pre-market

  • 6:30 a.m. ET: Cigna (CI) is expected to report adjusted earnings of $4.71 per share on revenue of $43.97 billion

  • Merck (MRK) is expected to report adjusted earnings of $1.54 per share on revenue of $13.19 billion

  • Eli Lilly & Co. (LLY) is expected to report adjusted earnings of $2.48 per share on revenue of $7.75 billion

  • Honeywell (HON) is expected to report adjusted earnings of $2.07 per share on revenue of $8.71 billion

  • Estee Lauder (EL) is expected to report adjusted earnings of $2.62 per share on revenue of $5.49 billion

  • Cardinal Health (CAH) is expected to report adjusted earnings of $1.25 per share on revenue of $45.34 billion

Post-market

  • 4:05 p.m. ET: Ford (F) is expected to report adjusted earnings of $0.45 per share on revenue of $34.79 billion

  • Amazon (AMZN) is expected to report adjusted earnings of $7.80 per share on revenue of $137.83 billion

  • Snap (SNAP) is expected to report adjusted earnings of $0.11 per share on revenue of $1.20 billion

  • Pinterest (PINS) is expected to report adjusted earnings of $0.43 per share on revenue of $832.92 million

  • Activation Blizzard (ATVI) is expected to report adjusted earnings of $1.31 per share on revenue of $2.66 billion

  • Skechers (SKX) is expected to report adjusted earnings of $0.34 per share on revenue of $1.55 billion

  • GoPro (GPRO) is expected to report adjusted earnings of $0.35 per share on revenue of $382.75 million

  • Fortinet (FTNT) is expected to report adjusted earnings of $1.15 per share on revenue of $961.96 million

  • News Corp. (NWSA) is expected to report adjusted earnings of $0.33 per share on revenue of $2.64 billion

  • Unity Software (U) is expected to report an adjusted loss of $0.08 per share on revenue of $293.39 million

Politics

  • Three candidates for the Federal Reserve Board will get their nomination hearing today. Sarah Bloom Raskin, who is up for the influential vice chair of supervision role, as well as Lisa Cook and Philip Jefferson will take questions from senators beginning at 8:45 a.m. ET.

  • President Biden is traveling to New York City where he will meet with Mayor Eric Adams and Governor Kathy Hochul this afternoon. They are set to discuss gun crime and other issues. The president is also speaking at the National Prayer Breakfast in Washington this morning.

  • While a permanent fix is elusive in the standoff between airlines and companies like AT&T (T) and Verizon (VZ) over the rollout of 5G towers near airports, Federal Aviation Administration Administrator Steve Dickson will testify at a congressional hearing on the issue beginning at 11:00 a.m. ET.

Top News

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European markets muted as traders await BoE and ECB interest rates decision [Yahoo Finance UK]

Why PayPal stock is plunging [Yahoo Finance]

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