(Boursier.com) – Wall Street continued its correction from the day before on Friday, after briefly attempting a jump following the latest US employment figures. The American rating is suffering from risk aversion, after the fall of the Californian bank for startups, Silicon Valley Bank, suspended on the stock market and which is now looking for a buyer. The S&P 500 now yields 0.33% to 3,905 pts, the Dow Jones loses 0.04% to 32,241 pts and the Nasdaq stumbles 0.5% to 11,281 pts.
Job creations remain very strong in the USA, but the slowdown in wages is a positive element from the point of view of the markets, which are watching for any signal of potential easing of inflation. These figures are however somewhat overshadowed today by the SVB affair, which is causing trouble in the small world of finance across the Atlantic and whose collateral damage remains to be specified.
On the Nymex today, a barrel of WTI crude returned 0.2% to $75.6. The ounce of gold takes 2% to $1,871. The dollar index lost 1.1% against a basket of benchmark currencies.
The US employment figures came out very solid once again in February. Non-farm job creations came in at 311,000, versus 215,000 from the FactSet consensus and 504,000 from the revised reading from the prior month. The unemployment rate stood at 3.6%, against 3.4% consensus and 3.4% a month earlier. Notable job gains were recorded in leisure and hospitality, retail, government segment and healthcare. Employment fell in information and in transportation and warehousing. Job creation in the non-agricultural private sector was 265,000, against the consensus 228,000. In contrast, the manufacturing sector lost 4,000 jobs. The average hourly wage for the month of February increased by 0.2% compared to the previous month and by 4.6% year-on-year, against respectively +0.4% and +4.7% of consensus, which constitutes a relatively good news on the inflation front. The labor force participation rate stood at 62.5% in February, against 62.4% consensus.
Note that job creations for December 2022 have been revised today from 260,000 to 239,000, while job creations for January 2023 have also been adjusted downwards, from 517,000 to 504,000.
Yesterday evening, the American indices had collapsed, the Dow Jones having yielded 1.66% and the Nasdaq more than 2%, in the wake of the bank Silicon Valley Bank, which threatens to collapse and whose course is now suspended. Investors fear a potential contagion, which should still encourage restraint today, especially in the financial and banking segment.
Janet Yellen, US Treasury Secretary, said today that the US administration was monitoring “a few banks”, following the problems encountered by SVB-Financial. “When banks experience financial losses, that is and should be cause for concern,” Yellen added, quoted by a New York Times reporter. On a more positive note, this time quoted by Business Insider, Yellen also says there is a chance the US economy will avoid recession as inflation slows.
Markets earlier this week sanctioned Fed Chairman Jerome Powell’s interventions before the Senate Banking Committee and its equivalent in the House of Representatives. The latter therefore indicated that the final rates would probably be higher than expected, and that the central bank stood ready if necessary to accelerate the pace of rate hikes in order to fight against inflation. Powell also explained that no decision had been made regarding the March meeting, the outcome depending on new data.
After yesterday’s events in the financial sector, markets, which had been pricing in a strong move of 50 basis points from the Fed this month due to Powell’s speech, came back more reasonably to a forecast of 25 bps, which would carry the range between 4.75 and 5% on the ‘fed funds’ (probability of 57% according to the real-time FedWatch barometer). The probability attributed to the 50 bp hypothesis is now only 43%.
Values
SVB-Financial (Silicon Valley Bank), the Californian bank specializing in financing venture capital and startups, is now suspended from the stock market after a 60% drop last night on Wall Street. The group rocked the world of finance last night by liquidating a bond portfolio of 21 billion dollars at the cost of a loss of 1.8 billion and simultaneously unveiling a project to raise capital of 2.25 billions of dollars. The group would be looking for a buyer, because it would not have been able to raise funds… The fall of the bank took with it the big American names in finance JP Morgan Chase, Bank of America and others Wells Fargowhose prices also corrected by 5% to 6% yesterday and remain under pressure today.
Taken by the throat by the ultra-rapid rise in Fed rates, SVB therefore had to urgently liquidate a bond portfolio comprising US Treasury bills and MBS (mortgage-backed securities) assets. SVB is also not immune to a “bank run”, since renowned investors such as Peter Thiel and his Founders Fund, references in venture capital, immediately advised companies in their portfolio to withdraw their money from the bank, even as the management of Silicon Valley Bank called for calm. According to Bloomberg, citing a source familiar with the matter, the Founders Fund has therefore asked companies in its portfolio to withdraw their funds. The agency adds that Coatue Management, Union Square Ventures, Canaan and Founder Collective have also advised firms in their respective portfolios to recover some or all of their money. Meanwhile, SVB Financial Group chief executive Greg Becker held a conference call to advise customers of SVB-owned Silicon Valley Bank to ‘stay calm’ amid concerns over the bank’s financial condition. .
Oracle, the now Texan management software giant, dropped 3% on Wall Street. The group was therefore somewhat disappointed, in particular not reaching the generous forecasts of analysts formulated concerning cloud activities. In its third fiscal quarter of 2023, the group posted revenues up 18% to $12.4 billion, close to market expectations, as well as adjusted earnings per share of $1.22 slightly above expectations. Quarterly net income was $1.9 billion, 68 cents per share. However, closely watched cloud revenues only climbed 45% to $ 4.1 billion in the quarter to the end of February, which disappoints some specialists.
Safra Catz, the group’s chief executive, estimates that revenues for the quarter ended in May should increase by around 16% (15 to 17%), in line with expectations. Adjusted EPS over this period is expected to be between $1.56 and $1.60, which would be significantly higher than expected. Oracle also increased its dividend by 25% to 40 cents per share.
Ulta Beauty (+1%), American specialist in the distribution of beauty products, announced quarterly accounts resistant to the rise in prices. The chain of beauty products and salons thus announced fourth quarter results that exceeded expectations. The management evokes an exceptional year and record sales. Ulta announced quarterly net income of $341 million, up 18%, and diluted earnings per share of $6.68, up 23%. Revenue reached $3.2 billion, an increase of 18% over the previous year. Same-store sales, for stores open at least 14 months, rose 15.6%. Analysts polled by FactSet had expected adjusted EPS of $5.7 and revenue of around $3 billion. Comparable store sales were expected to rise 8.7%… Over the year, Ulta posted revenues of $10.2 billion and net income of $1.2 billion.
gap, an American clothing retailer, dropped 5% on Wall Street. The group has just published quarterly accounts without relief and expects a continued decline in sales, with the impact of inflation. Gap will therefore reshuffle its management teams by eliminating certain layers… For its fourth quarter, the group recorded a net loss of 273 million dollars, 75 cents per share, against a loss of 16 million dollars a year before. Revenue fell 6% to $4.24 billion. Same-store sales declined 5%. Analysts polled by FactSet had expected Gap to post an adjusted loss of 46 cents a share, on revenue of $4.36 billion and a 3.1% decline in same-store sales.
gap removes the role of Chief Growth Officer, held by Asheesh Saksena. Sheila Peters, Chief People Officer at Gap, will also leave at the end of the year. The group is set to choose a new chief executive, following the resignation of Sonia Syngal in July. The firm will remove “layers of management” and take other steps to streamline operations, which is expected to save $300 million. Gap estimates that its first quarter sales could fall “in the mid-single digit range” year-on-year. For the full year, sales could decline in the low to mid-single digit range. Analysts polled by FactSet expected growth for the full year…
You’re here (+1%), the Texas electric vehicle manufacturer, contacted Asian suppliers to obtain higher power and a lower cost for its batteries, according to Reuters. People familiar with the plans quoted by the agency indicate that Elon Musk’s group has called on Ningbo Ronbay New Energy, Suzhou Dongshan Precision Manufacturing and L&F Co to help with its 4680 batteries, LG Energy Solution and Panasonic will also manufacture for Tesla’s Cybertruck.
Meta (stable), ex-Facebook, plans to launch a social network that could compete with Twitter as a global digital marketplace. According to a spokesperson for Meta quoted by Reuters, the group is indeed evaluating “a decentralized social network autonomous for sharing text updates”, where creators and personalities could share “timely updates”. Reuters mentions an application operating in a decentralized way like Mastodon. The launch date has not been specified.