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May 4, 2018

The Wall Street Journal | MoneyBeat Investors Eye the Risks of 4% Unemployment on May 4, 2015.

The Wall Street Journal
MoneyBeat

Investors Eye the Risks of 4% Unemployment

By Chelsey Dulaney
Morning MoneyBeat is the Journal’s pre-market primer. To receive the newsletter via email, click here.
Market Snap at 05/04/2018 07:48:00 AM ET
S&P 500 Futures -0.2%
2626.5
DJIA Futures -0.18%
23868
U.S. 10 Year 3/32
2.938%
WSJ Dollar Index 0.12%
86.16
Crude Oil 0.53%
$68.79
Gold -0.14%
$1310.90
Europe
Asia
FTSE 100 0.39%
Nikkei 225 -0.16%
DAX 0.44%
Hang Seng -1.28%
CAC 40 -0.05%
Shanghai -0.32%

The Breakfast Briefing

The unemployment rate is expected to have fallen to 4% in April, a sign of increasing labor-market pressures that could have big implications for investors.
The Labor Department’s U.S. jobs report, expected at 8:30 a.m., is expected to show another month of strong hiring. This should push the jobless rate down after six consecutive months at 4.1%.
That in and of itself isn't enough to cause anxiety. The Federal Reserve believes the jobless rate has further to fall, with officials in March forecasting a decline to 3.6% next year.
The fear, though, is that such a low unemployment rate will ratchet up pressure on employers to raise wages quickly to secure workers.
Inflation and wage growth have been rising steadily in recent months but have yet to show a sudden surge. As the shortage of available workers intensifies, investors believe that wage growth and inflation will accelerate
“The very low unemployment rate means that the pool of labor has shrunk to the point where firms just can't find all the people they want,” said analysts at Pantheon Macroeconomics.
And a pick-up in wage inflation could encourage the Fed to accelerate the pace of rate-increases.
Investors already had a taste back in February of what that could mean -- increased volatility, higher U.S. bond yields and a stronger dollar. For stocks, that could be hard to stomach.
What is your outlook for the labor market? Let the author know your thoughts at chelsey.dulaney@wsj.com.

Daily Factoid

On this day in 1979, Kohlberg, Kravis, Roberts & Co. completed the first modern leveraged buyout using high-yield junk bonds--a $381 million deal to take Houdaille Industries private.

Key Events

The jobs report, due out at 8:30 a.m. ET, is expected to show that the U.S. added 195,000 new jobs in April and the unemployment rate fell to 4% for the first time since December 2000. Read the full preview here.
The conservative Hoover Institution's monetary policy conference runs through Friday. Sitting Fed officials slated to speak include John Williams, Raphael Bostic, Esther George and Robert Kaplan, presidents of the San Francisco, Atlanta, Kansas City and Dallas reserve banks respectively, and Randal Quarles, vice-chairman of regulation.

Stocks to Watch

Pandora—Up 15.8%: The music streaming company posted a smaller-than-expected loss in the most recent quarter and also exceeded revenue targets.
Twitter—Down 1.2%: Twitter said it uncovered a glitch in how its users' passwords were stored. While the social-media firm said it had found no "indication of a breach or misuse by anyone," it added that users should consider changing their password.
Tesla—Down 0.2%: Shares of the electric auto maker fell 5.6% Thursday, their worst day in more than a month, after Chief Executive Elon Musk sparred with analysts on the firm's earnings call late Wednesday. Some said the incident threatened investors’ faith at a pivotal time for the company.
GoPro—Up 0.4%: GoPro said quarterly sales fell less than expected, and the maker of action cameras said a ramp up in marketing and new products in the second half of the year gives it confidence for a successful 2018.

Number of the Day

40,000
The approximate number of Berkshire Hathaway shareholders from around the world who are expected to gather in Omaha, Neb. for the company's annual meeting this weekend. They will hear Warren Buffett, chairman and CEO, and Vice Chairman Charles Munger discuss the business and answer questions.

Must Reads

The recent tax overhaul repealed a deduction for investment-advisory fees that effectively will raise fees for millions of investors. But there are a few steps investors can take to ease the impact.
Alibaba will report earnings this morning. Analysts say its core commerce revenues will remain strong, but the company’s profit may take a short-term hit as it seeks to consolidate its affiliate Ant Financial.
Xerox late Thursday said its existing board and management would stay in place after an agreement with two of its biggest shareholders to oust the company’s chief executive and shuffle the board expired.
The U.S. handed China a lengthy list of demands on trade, ranging from immediately cutting a trade imbalance by $100 billion a year to halting all Chinese government support for advanced technologies, as negotiators dug in for difficult talks. Meanwhile, the trade spat is cutting into the flow of commodities from U.S. farms to one of the world’s biggest markets.
States are turning to a free-market solution for highway congestion, putting in place demand-based tolls. But there is one hitch: price caps.