Morning Reads
- Top $59 Billion as Sanctions Hit
- Food Export Bans
- Shanghai Returns to Lockdown
- Lose $141 Billion as Market Turns
- A Plea From German Brewers
- Lessons From Henry Ford
- How Inflation Became a Global Problem
- ECB Plans July Rate Increase as Inflation Problem Deepens
- How Inflation May Change Where You Put Your Cash
- Fed Dot Plot Seen Signaling Rise in Median Rates to 3.1% in 2023
- Imagine Markets in 2052
- Global Investment Banking Faces Tougher Times
- As Gas Prices Near $5 a Gallon
- Why Apple’s BNPL Just Became a Nightmare
- A Billion-Dollar Crypto Gaming Startup
- 3M’s ‘Forever Chemicals’ Crisis
- Disney Fires Peter Rice, Its Top TV Content Executive
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he next big test for the markets arrives at 8:30 a.m. ET as the Bureau of Labor Statistics discloses its latest print on U.S. inflation. Traders already got nervous in the previous session, with the Nasdaq plunging nearly 3% and the Dow posting a decline of more than 600 points. "There's a bit more chatter, call it whisper numbers, for the Consumer Price Index being a little north of expectations," said Liz Ann Sonders, chief investment strategist at Charles Schwab.
Snapshot: The consensus estimate among economists predicts an 8.3% increase for the main CPI number, which would match last month's figure, but mark a slight slowdown from the record 8.5% seen in March. Market sentiment could get dented if today's reading comes in higher than 8.3%, but may also get bolstered if it matches expectations or shows slower gains. Wall Street would take that as a sign of a peak in price pressures, with the Fed needing to be less aggressive in its tightening cycle later this year.
A fair dose of pessimism is still out there as soaring energy prices show no sign of abating and price tags continue to be marked up at the supermarket. Last month, the services sector also accounted for about 40% of inflation, which will be harder to reverse and risks becoming more embedded in the U.S. economy. Core CPI, which excludes volatile food and energy, could provide some more clarity on that front and is expected to cool further to 5.9% Y/Y in May (from a prior 6.2%).
Commentary: "I said last month that we needed to see headline CPI drop below 8%," KPMG senior economist Tim Mahedy wrote in a note. "This makes another 50 bps hike in September increasingly likely... and the Fed pushing rates above neutral in the fourth quarter. We're running out of time, and there are a lot of reasons to think that inflation will ease, but it will be more gradual than the Fed would like." (31 comments)
The national average price at the pump has surpassed $5.00 per gallon, according to GasBuddy, an industry consultant that surveys prices at more than 150K stations nationwide. The average from AAA is also likely to reach that level this weekend, with prices standing at $4.986 per gallon as of early Friday. For energy investors, the supply-demand imbalance appears most acute in the refining sector, where names like Valero (VLO), HF Sinclair (DINO) and Par Pacific (PARR) stand to benefit from record margins, while integrated producers like Exxon (XOM), BP (BP) and Chevron (CVX) are better equipped to manage a refining bottleneck than upstream peers.
Recession worries: It's unclear where the breaking point is, but gasoline underpins much of the economy, from transport and travel to production and construction. It also guides a significant amount of consumer behavior, as well as inflation expectations, which can have even more damaging consequences on the economic outlook. Many see trouble in store if fuel prices continue to rise, or stay at elevated levels for an extended period of time, though Treasury Secretary Janet Yellen said Thursday that "there's nothing to suggest that a recession is in the works" after admitting last week that she was wrong about the trajectory of inflation.
Rule of 10? There's a theory out there that the U.S. economy generally runs into trouble when interest rates (the cost of money, which everyone uses) together with energy prices (the cost of energy, which everyone uses) reaches double digits. To calculate the indicator, the average rate on the 30-year fixed-rate mortgage (5.23% as of Thursday) is added to the prices at the pump (now averaging $5). The rule was coined by Strategas chief economist Don Rissmiller in 2011, when the U.S. was still recovering from the global financial crisis.
Outlook: "The economy is definitely on thin ice here, but I don't think we're there yet," said Mark Zandi, chief economist at Moody's Analytics. "If we get to $5.50 or $6 [gasoline], that would be consistent with $150 for a barrel of oil. I think then, we're done. We're in for a recession. It would be too much to bear. I think we could digest $120 [oil] if we don't stay there too long." (11 comments)
DocuSign (DOCU) went deep into the red in after-hours trading on Thursday as the stock cratered as much as 26% to $64 following weaker-than-expected Q1 results. EPS fell well short of estimates for $0.46, though revenue topped projections at $588.7M (+25.5% Y/Y). Before adjustments, the electronic-signature tech company also reported a net loss that widened to $27.4M for the quarter, compared with a loss of $8.4M in the period a year ago.
Bigger picture: As the investors continue to worry about the economy, there has been a shift away from a focus on growth to profitability. DocuSign put up some strong growth early on in the pandemic, given the increase in online transactions, but business has slowed in recent quarters and the company is attempting to fix its go-to-market challenges. Earlier this week, DocuSign announced an expansion of its partnership with Microsoft (MSFT), but it doesn't look like that will be enough for investors.
Full-year revenue guidance was maintained at $2.47B-$2.48B on the top line, but the mid-point of that range slightly missed consensus estimates. Revisions could also happen in the future, though DocuSign CEO Dan Springer is confident about the outlook. "With over a billion users worldwide, the proven value of our products, and the significant opportunity we have ahead of us, we're confident in our ability to successfully navigate the challenges of a dynamic global environment."
From the SA comments section: "Did Cathie [Wood] buy the dip?," asked Yuji__0. "This stock can fall another 50% and will be still overvalued," commented ddca48. "Might get interesting in the low $40s and a PE in the 20a," added khansfman09, while scorpionblue speculated about a merger. "Is this better than $dbx? maybe they should merge, the kings of sbc. docudropsign." User donzoab is taking the other side of the argument, saying it's too early to point to doomsday. "Docu will be fine. Over time this cycle will reverse... I have no idea what the bottom is, but from here and lower, it's a strong buy." (74 comments)
The battle over the Starbucks (NASDAQ:SBUX) bathroom has resurfaced following comments from longtime CEO Howard Schultz, who returned to the helm of the company back in April. "We have to harden our stores and provide safety for our people," he told The New York Times DealBook D.C. Policy Forum, attributing the U-turn to security issues. "I don't know if we can keep our bathrooms open."
Backdrop: The company announced its open-bathroom policy in 2018 in response to an incident in which two Black men were arrested at a Starbucks in Philadelphia. The pair were reported to the police by an employee after they were denied use of the store's bathroom and were asked to leave because they hadn't made a purchase. When they did not comply, the store manager called the police, saying the men were trespassing, and a viral video of the incident went on to make national news and prompt outrage against Starbucks.
In response, the coffee chain apologized for the event and closed all of its U.S. stores for a day for staff to attend an anti-bias training. Schultz, who was executive chairman at the time, influenced the decision to open "restrooms, cafes and patios" to all customers regardless of whether they made a purchase. "We don't want to become a public bathroom, but we're going to make the right decision 100% of the time and give people the key, because we don't want anyone at Starbucks to feel as if we are not giving access to you to the bathroom because you are 'less than.'"
Outlook: Starbucks is dealing with other sensitive workplace situations as of late, like a union drive that is strengthening across the country. "We can't ignore what is happening in the country as it relates to companies throughout the country being assaulted, in many ways, by the threat of unionization," Schultz told baristas on his first day back as Starbucks CEO in April. Shares of the company have fallen with the broader market this year, tumbling 32% YTD. (24 comments)
Today's Markets
In Asia, Japan -1.5%. Hong Kong -0.3%. China -1.4%. India -1.8%.
In Europe, at midday, London -1.3%. Paris -1.8%. Frankfurt -1.6%.
Futures at 6:20, Dow -0.3%. S&P -0.2%. Nasdaq +0.1%. Crude +0.7% to $122.37. Gold -0.4% to $1844.90. Bitcoin -1.9% to $29,935.
Ten-year Treasury Yield -1 bps to 3.03%
Today's Economic Calendar
8:30 Consumer Price Index
10:00 Consumer Sentiment
10:00 Quarterly Services Report
1:00 PM Baker-Hughes Rig Count
2:00 PM Treasury Statement
Companies reporting earnings today »
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