Friday May 3 2024 15:53
6 min
It’s been a bad night for the Conservatives on the back of local election results. This is not a surprise, and not uncommonly bad for a 14-year government. A 26% swing in the Blackpool by-election is more concerning. The question is whether it prompts the party to move on its leader before the next General Election. Asked whether the results were “catastrophic” for the Tories, polling expert John Curtice said they were “not far short of it”.
A lot now rests on the mayoral elections – can Sunak salvage something he can spin? Pressure is bound to mount. Does Sunak survive? Are we heading for a snap summer election? Are the Tories facing an “extinction level” event?
If polls point to the Tories keeping 90 seats, the focus for the men in grey suits is to manage the situation so that they retain enough MPs, enough critical mass, to survive as the Opposition and, indeed, as a Party.
We look at these questions in the latest Overleveraged with BlondeMoney’s Helen Thomas.
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The FTSE 100 index rallied a third of percent at the open on Friday to breach 8,200. It outperformed on Thursday versus European peers, rising 0.6% against the Stoxx ex-UK –0.5%, as Standard Chartered jumped almost 9%after Shell added some heft. Paris and Frankfurt rose by around 0.4% early Friday before trimming gains as of send time as risk appetite appeared to firm up into the weekend. Hong Kong was up again and the after-hours bounce for Apple buoyed Asian chip suppliers and tech names.
Wall Street rallied on Thursday, with the S&P 500 up close to one percent for its first up day in three. The sense is that the Fed is not as hawkish as feared – cuts are in the post. There were some outsized earnings-based moves by single stocks - Qualcomm +10% on better-than-expected earnings and guidance; DoorDash -10% on widening losses; Carvana jumped by a third after reporting its best-ever earnings (we are so back!); Moderna +13% on narrower-than-expected loss.
Apple shares rallied 6% in after-hours trading following the company’s latest earnings, which beat expectations. Sales of the iPhone were down 10% but talk of AI and a massive share buyback buoyed the stock. Overall, the 4% decline in revenues on the year was less than expected. Services revenue grew 14% - the pivot to becoming a services-business means gross margins remain extremely high and return on capital strong. That, combined with Tim Cook talking up AI for the first time, means investors not overly concerned the $110bn buyback - +22% on last year and its biggest ever - is a waste of capital. On the other hand, when Sam Altman says he doesn’t care if OpenAI burns $50bn a year, you could argue that Apple’s war chest could be better used. AAPL had declined 7% YTD before the close on Thursday – with the implied move after-hours I think we get back to flat for the year by the close today.
Today we look ahead to the nonfarm payrolls report. Stocks may like a good number this time as the focus on the Fed is mainly about the stickiness of inflation. Consensus is for +243k jobs, unemployment steady at 3.8% and wages at 4%, which would be the lowest since June 2021. It looks like some macro data has slipped recently and this opens the door to a downside surprise. Flash S&P PMI data for instance showed a drop in employment for the first time in almost 4 years. The JOLTS report also openings down to a three-year low. The labour market is definitely not as healthy as it once was – hardly decrepit though. Indeed initial jobless claims continue to hover around 200k. Wage growth at 4% would be a good story for the Fed in terms of inflationary pressures and maintain the less-hawkish-than-feared outlook we got on Wednesday. The ISM services PMI data is also on the docket.
The dollar has come off a bit the last couple of sessions on the (relatively) less-hawkish Fed. The dollar index briefly hit a 6-month high on Wednesday ahead of the Fed meeting but reversed course and is coming off a 3-week low this morning. EURUSD holds above 1.07 and GBPUSD is at 1.2540, capped by the 200-day line. Relative dollar softness is providing some relief to the yen, with USDJPY trading on 153.
Crude oil – set for worst weekly decline in three months – looking at whether the move has overdone it, with some indecision either side of the 50% retracement at $79.
Finally, Warren Buffett hosts the annual Berkshire meeting in Omaha, the first without Charlie Munger. He trimmed his Apple stake last year – what does he think now?
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