Wall Street Brunch: Jobs report will dictate Labor Week

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A weak August payrolls report could put a half-point Fed cut in play. (0:17) Chinese EV makers report deliveries. (3:55) X’s shutdown begins in Brazil. (5:09)

Labor Day week on Wall Street will be about… well, work.

The August jobs report comes out on Friday, and after the fireworks set off by July’s numbers, expect plenty of jockeying for position ahead of print.

Economists expect nonfarm payrolls to have risen by 164,000, with the unemployment rate falling to 4.2 percent and average hourly earnings rising 0.3 percent.

Nomura said underlying employment growth was cooling, but the weakness seen in July appeared to be exaggerated by a temporary impact from the weather, which should normalize in August.

“Hiring is slowing, which should put upward pressure on the unemployment rate in the medium term, but without large-scale layoffs the increase should be gradual,” they added.

Pantheon Macro says that apart from the Homebase figures, which appear to be struggling to track the official figures, other labor indicators “broadly point to a softening, though not exploding, labor market”.

But a weak payrolls number could put a September Fed rate cut of 50 basis points back on the table. Right now, prices only have a 30% chance of half a point off, but they’re also priced a full point off until the end of the year, with just three dates to go.

In response to the latest Fed minutes, TS Lombard economist Steven Blitz says, “The FOMC is much less certain that policy is in the right place than it was six weeks ago. Then we read how monetary policy was “well positioned”. to manage whatever followed in July, not such wording, but just hand-wringing about the uncertainty of how leadership and gaps will affect economic activity.”

“With the risk of employment rising and the risk of inflation falling … some participants “noted the risk that further gradual easing of labor market conditions could turn into a more serious deterioration.”

“That’s the problem with a data-driven approach – when the bad data comes in, the policy is already late.”

On the earnings side, Dollar Tree ( DLTR ) reported high tension in the discounter sector on Wednesday after Dollar General ( DG ) posted a 30% drop in earnings.

Dollar General had its worst day of trading after the company warned of “financially constrained” customers. Wells Fargo’s view is that Dollar General’s turnaround efforts have clearly run into trouble.

Analyst Edward Kelly says: “We think macro, competition and underinvestment are having an impact.” He also believes that the retailer needs to make a large investment in labor (hours/rates) to restore confidence in the chain. Evercore ISI analyst Michael Montano also said Dollar General’s results show the challenge of maintaining market share, with Walmart ( WMT ) gaining in a slower growth environment.

Amid the spotlight on Dollar General, Dollar Tree fell 14% for the week.

Also on the earnings calendar:

Zscaler ( ZS ), GitLab ( GTLB ), and PagerDuty ( PD ) chime in on Tuesday.

Along with Dollar Tree, Hewlett Packard Enterprise ( HPE ), Dick’s Sporting Good ( DKS ), Casey’s General Stores ( CASY ), C3.ai ( AI ) and ChargePoint Holdings ( CHPT ) reported on Wednesday.

And on Thursday, Broadcom ( AVGO ), DocuSign ( DOCU ), Samsara ( IOT ), NIO ( NIO ), Rent the Runway ( RENT ), and Planet Labs ( PL ) report results.

Conferences should also add some action in the short trading week.

Intel ( INTC ), which is worried about barbarians at the gate amid a more than 55% year-to-date drop, will host an event in Berlin to launch its next-generation Core Ultra processors, codenamed Lunar Lake. During the live event, the company will reveal details about the new processors’ x86 energy efficiency, core performance, graphics performance and AI computing power.

Keynotes at the Roblox Developer Conference (RBLX) could also grab attention. And the Citi Global Technology, Media and Telecom Conference will include participation from Microsoft (MSFT), Super Micro Computer (SMCI), Dell Technologies (DELL), Intel, MongoDB (MDB) and Etsy (ETSY). The Citi TMT conference call has led to share price moves in the past based on outside management updates.

In news this weekend, Chinese EV manufacturers reported delivery numbers.

BYD ( OTCPK:BYDDF ) had another record month of new energy vehicle sales in August, as sales of plug-in hybrid electric vehicles hit a sixth consecutive March record high. China’s top-selling auto brand reported sales of 373,083 vehicles in August, surpassing July’s record of 342,383 units. That’s a 30% increase over last year.

Li Auto ( LI ) reported 48,122 deliveries in August, up 37.8% year-on-year, down from 51,000 in July. The company’s share of the RMB 200,000 and above NEV market rose to 18% in July, overtaking Tesla ( TSLA ) to take the top sales spot among China’s NEV brands.

XPeng ( XPEV ) said it shipped 14,036 smart electric vehicles in August, up 3% year-on-year and 26% from the previous month.

And NIO ( NIO ) said it delivered 20,176 vehicles in August, down for a second month. It delivered 11,923 premium smart electric SUVs and 8,253 premium smart electric sedans. Deliveries were down 1.5% sequentially and up 4% year-on-year.

And the shutdown of X, formerly Twitter, in Brazil began early Saturday. The AP says it’s largely inaccessible on both the web and mobile apps. Elon Musk has refused to appoint a legal representative in the country, missing the deadline imposed by Supreme Court judge Alexandre de Moraes. The two have been feuding for months over freedom of expression, far-right reporting and misinformation.

Musk said: “X is the most used news source in Brazil. It’s what the people want. Now the tyrant Voldemort is crushing the people’s right to free speech.”

De Moraes wrote in his ruling: “Elon Musk has shown his complete lack of respect for Brazilian sovereignty and, in particular, for the judicial system, by creating himself as a true supranational entity and immune to the laws of each country.”

For income investors, McDonald’s ( MCD ), Lockheed Martin ( LMT ) and Nike ( NKE ) are going ex-dividend on Tuesday. McDonald’s pays on September 17th, while Lockheed pays on September 27th and Nike pays on October 1st.

Cigna (CI) goes ex-dividend on Wednesday, with a September 19 payment date.

Companies forecast to increase quarterly dividends include VICI Properties ( VICI ) to $0.44 from $0.415, Stewart Information ( STC ) to $0.50 from $0.475, and Brady ( BRC ) to $0.24 from $0.235.

And in the Wall Street Research Corner, not all great shorts are created equal.

There is a relatively weak correlation between short positions in certain assets and measures of distress, indicating that not all heavily shorted stocks are experiencing distress as defined by traditional metrics. That’s according to S3 Partners, a well-known short interest data tracker.

Market sentiment and valuation concerns are among the factors that can drive short interest beyond immediate distress signals.

S3 examined three measures of attrition for actions:

• Average analyst ratings range from 1 to 5
• Credit default swap spreads, which reflect the cost of insuring a company’s bonds and a measure of default risk
• Altman Z-Score, a metric that uses fundamental indicators to estimate the probability of bankruptcy

Analyst Leon Gross says, “Our analysis shows that while there is a statistically significant correlation between the size of short positions and these measures of distress, the correlation is relatively weak, with a coefficient of only 0.20.”

Investors “may be shorting stocks based on valuation concerns rather than specific distress signals,” Gross said.

Shorting an asset can also be part of broader strategies or non-distressed hedging activities.

S3 identified “notable outliers” during its analysis, including American Airlines (AAL), which had a high short position of ~18.4% but a “moderate” CDS spread of 200 basis points and an Altman Z -Low score, indicating minimal bankruptcy. risk.

“This discrepancy suggests that despite moderate distress signals, AAL is heavily shorted, possibly due to specific market views or factors not captured by these metrics,” Gross said.

Editor’s Note: This article discusses one or more securities that are not traded on a major US exchange. Please be aware of the risks associated with these stocks.