The Market Sum | Insight after the bell Friday's Headlines 1. US markets tumble on China growth concerns 2. January jobs report exceeds estimates, but 2019 gains heavily revised 3. Labor force participation is strong 4. What's ahead for next week? Dow
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-16.2% | | | |  Markets Today U.S. markets tumbled to end the topsy-turvy week as yesterday's rally on good trade news was washed away by concerns about the economic spillover of the coronavirus. Predictions about the impact on China's GDP have ranged from a relatively benign 2 percentage-point reduction in growth to as much as 6 points. The latter case would mean 0% growth for China in 2020. Because of the globally interconnected economy, and the U.S. and China being one another's biggest customers, a significant slowdown in China would surely impact U.S. economic growth. The Federal Reserve said as much today in its semi-annual report to Congress. "Because of the size of the Chinese economy, significant distress in China could spill over to U.S. and global markets through a retrenchment of risk appetite, U.S. dollar appreciation, and declines in trade and commodity prices," the U.S. central bank wrote. "The effects of the coronavirus in China have presented a new risk to the outlook." The good news is that the number of new cases reported in China fell for the second day, according to the World Health Organization. The total amount of illnesses related to the virus is 32,211, and the death toll stands at 638 globally. That said, the virus has not stopped spreading.  chart courtesy of CDC.gov Headlines: - Apple (AAPL) said it is extending the closure of its stores and offices in China to "the week of February 10." The company said last week that it would shut down all its stores in mainland China through Feb. 9. China is a key growth area for Apple, which has struggled against local competitors that sell Android phones.
- Credit Suisse (CS) Chief Executive Tidjane Thiam has been ousted amidst a spying scandal. He will be replaced by Thomas Gottstein, who heads the bank's Swiss business, and has spent more than 20 years at the company.
- Warner Music Group, owned by Access Industries, has filed for an IPO. The number of shares of common stock to be offered and the price range for the offering have yet to be determined.
- eBay (EBAY) shares fell nearly 5% as the NYSE's parent company, Intercontinental Exchange (ICE), said it is not in negotiations to buy all or part of it. ICE said it had approached eBay to explore a range of potential opportunities but the e-commerce company did not engage in a meaningful way.
- Aurora Cannabis (ACB) founder & CEO, Terry Booth, has announced his retirement. Interim CEO will be executive chairman Michael Singer. The company also announced sweeping changes to its business, including cutting 500 jobs and reducing capital expenditures, to cope with slower-than- expected near-term industry growth.
- Warner Bros. is finalizing agreements with the cast of Friends for an unscripted reunion special episode, according to The Wall Street Journal. The episode will be a retrospective with interviews and will be used to launch the HBO Max streaming platform in May. This isn't quite what fans obsessed with remakes want, but the headlines alone should create the buzz desired.
 January Jobs Report Blowout The U.S. nonfarm-payrolls report for January (the jobs report) blew out expectations as employers added 225,000 jobs to their payrolls. Economists expected around 160,000, but warmer weather last month may have increased hiring.
Here are some of the other highlights:
- Nonfarm payrolls grew by 225,000 with net positive revisions of 7,000, leaving the 3-month moving average at 211,000, which suggests a strong trend in hiring.
- Weather-sensitive industries such as construction saw outsize gains.
- The unemployment rate edged up to 3.6%, reflecting the expansion in the labor force as the labor force participation rate increased to 63.4% from 63.2%. More on that in a minute.
- Average hourly earnings increased 0.2% month-over-month.
- 2019 job gains were revised down by more than 500,000. That's a pretty big revision, but not uncommon.
Monthly job gains don't tell us too much about the economy unless the numbers widely diverge from month to month in an unexpected fashion. The Bureau of Labor Statistics (BLS) surveys employers about their payrolls and then extrapolates a total number of jobs gained or lost in a given month. It's inexact forecasting, but it's the best we have. What is worth paying attention to is wage increases, since that means a healthier consumer; and labor force participation, which measures the percentage of people who are actively employed in the labor force. You want to see a high number in a healthy economy, and the U.S. has that going for it right now. chart courtesy BLS.gov  What to Expect Next Week: Here's how different asset classes have been doing year-to-date:  Here are some of the key economic events on the calendar for the week ahead:
Sunday February 9
- Chinese Consumer Price Index (CPI) (Jan.)
- Chinese Producer Price Index (PPI) (Jan.)
Monday February 10
- Canadian Housing Starts (Jan.)
- Canadian Building Permits (Dec.)
- British Retail Consortium Retail Sales Monitor (Jan.)
Tuesday February 11 - Market Holiday in Japan for National Founding Day
- U.K Business Preliminary Investment (Q4)
- U.K. Preliminary Gross Domestic Product (GDP) (Q4)
- U.K. Manufacturing Production (Dec.)
- U.K Trade Balance (Dec.)
- Brazilian Central Bank Meeting Minutes
- Speech by ECB President Lagarde at European Parliament
- Fed Chairman Jerome Powell Testifies Before Congress on Economic Outlook
- Job Openings and Labor Turnover Survey (Dec.)
Wednesday February 12 - Eurozone Industrial Production (Dec.)
- Indian CPI (Jan.)
- Brazilian Retail Sales (Dec.)
- U.K. Autumn Budget Announcement (Tentative)
- Fed Chairman Jerome Powell Continues Testimony Before Congress on Economic Outlook
Thursday February 13
- German CPI (Jan.)
- U.S. CPI (Jan.)
- Japanese Tertiary Industry Activity Index
Friday February 14
- German Preliminary GDP (Q4)
- Chinese New Loans
- Eurozone Preliminary GDP (Q4)
- Eurozone Trade Balance (Dec.)
- U.S. Retail Sales (Jan.)
- U.S. Industrial Production (Jan.)
- U.S. Business Inventories (Dec.)
- Preliminary Michigan Consumer Sentiment Index (Feb.)
Earnings Season is Drawing to Close
Earnings season is nearly done, but Investopedia still has a few more previews for you. Next week Chinese e-commerce behemoth Alibaba (BABA) reports earnings, along with chipmaker Nvidia (NVDA), and marijuana grower Canopy Growth (CGC). Investors should be on the lookout for Alibaba's reporting on its number of active customers. Since it doesn't actually hold and sell goods like Amazon, it makes much of its money from advertising, so the more customers milling about its online markets, the better. Nvidia, like all commodity businesses, needs to show it can keep its margins steady even thought it struggled through much of last year. Canopy Growth, like much of the marijuana industry, has been having a hard time for the last several quarters. Keep an eye on Canopy's cash flow, because startups need to avoid running out of money, and that's a real risk in the cannabis sector. Check out our earnings previews for Alibaba, Nvidia, and Canopy for more.
Powell Testifies: What to Watch For
Fed Chairman Jerome Powell testifies before Congress next week in his semi-annual testimony on monetary policy. The Fed delivered a preliminary report to Congress on Friday with mixed messages. The report said that, "Downside risks to the economic outlook seem to have receded somewhat in the latter part of 2019." That reassurance is somewhat offset by report also saying, "The effects of the coronavirus in China have presented a new risk to the outlook." So keep an eye out during the testimony if the outbreak significantly worsens between now and then. In addition, the JOLTS survey, which gives a much more detailed look at the U.S. labor market than the weekly jobs report, is released on Tuesday. If that offers a surprise, positive or negative, see how Powell reacts. Biotech firm Moderna rose today after releasing positive comments about their progress towards a coronavirus vaccine. Identity-theft protection firm NortonLifeLock, oil-drilling services firm National Oilwell Varco, and pharmaceutical firm AbbVie all rose after reporting better-than-expected earnings. Broadband equipment maker Ubiquiti Networks and video game maker Take-Two Interactive both fell after disappointing earnings reports. Food delivery firm GrubHub fell after a D.A. Davidson analyst downgraded the stock from "neutral" to "underperform". Word of the Day Labor Force Participation Rate The labor force participation rate is a measure of an economy's active workforce. The formula for the number is the sum of all workers who are employed or actively seeking employment divided by the total noninstitutionalized, civilian working-age population.  Image Source: EUEvents.eu Today in History Feb. 7, 1992 Today in 1992, the Maastricht Treaty was signed, creating the European Union when it went into effect the following year. Among other things, the treaty established the European Central Bank (ECB) and started the process for adopting a single currency, eventually named the Euro. The treaty established a set of criteria, such as rates of debt and inflation, that countries needed to meet in order to eventually join the Euro. These criteria would later become famous after it emerged that Greece had faked data to meet the criteria in order to join the Euro, which was one of the factors leading to the Greek debt crisis. Sources: https://www.bbc.com/news/world-europe-16834815 https://www.investopedia.com/terms/m/maastricht-treaty.asp Enjoy the Market Sum? Share it with a friend. CONNECT WITH INVESTOPEDIA |
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