A Pivotal Jobs Report Is Expected to Show More Cooling

What to watch in today’s jobs report

The U.S. labor market appears to be slowing. But is the economy still strong enough to avoid recession, as the Fed chairman, Jay Powell, contends? That’s the big question hanging over today’s payroll numbers, which are due for release at 8:30 a.m. Eastern.

Employers added roughly 180,000 jobs last month, economists have forecast. If correct, those figures would come in well below the 345,000-per-month average over the first quarter.

Forecasters have repeatedly underestimated the strength of the post-pandemic labor market. They have undershot the payroll number 12 straight times, assuming companies would pull back on hiring as the Fed raised borrowing rates to tame inflation. Instead, employers have added roughly 4.5 million jobs since the central bank started increasing interest rates in March 2022. That comes despite waves of layoffs in the tech and retailing sectors, and a banking crisis that has led to the collapse of three regional lenders since March.

Another hot jobs number could still influence the Fed’s interest rate policy. The Fed signaled that Wednesday’s rate increase would be its last for a while, but the central bank is determined to lower inflation to its 2 percent target. It has resolved to bring prices under control, “even at the expense of broader macro conditions, specifically calling out the still tight labor market,” Joe Davis, chief global economist at Vanguard, wrote in a note ahead of today’s report.

Keep an eye on wages. The Labor Department’s employment cost index recently showed wages growing above expectations last quarter, a factor that could be driving up inflation. So far, Davis said, the Fed has been unable to “manufacture a wage slowdown.”

HERE’S WHAT’S HAPPENING

Goldman Sachs is under investigation over its work for Silicon Valley Bank. The Wall Street giant disclosed in a regulatory filing that the authorities are looking into it for, in part, the advice it gave the lender to sell a large portfolio of securities at a loss. Within days, SVB had collapsed, touching off a larger crisis for regional banks.

Ed Sheeran wins a big copyright infringement suit. The British musician’s chart-topping hit, “Thinking Out Loud,” was not a rip-off of Marvin Gaye’s “Let’s Get It On,” a New York federal court ruled. The verdict is seen as a victory for songwriters fearing a rash of copycat copyright lawsuits.

New York and California investigate the N.F.L. The state’s attorneys general opened investigations into the league over workplace discrimination and pay inequities following a 2022 report in The Times on the league’s treatment of female employees. The league said it is cooperating.

Berkshire Hathaway investors converge on Omaha. Shareholders are expected to question Warren Buffett and his lieutenants about the firm’s big bets on oil and on his “favorite child,” the auto insurer Geico, at the conglomerate’s annual investor day on Saturday. Berkshire’s stock has been essentially flat over the past year, but it has outperformed the S&P 500.

Clarence Thomas and his wife face more scrutiny over finances. The Supreme Court justice did not disclose that the billionaire Republican donor Harlan Crow paid the school tuition for his great-nephew, according to a ProPublica investigation. Separately, The Washington Post reported that a conservative judicial activist arranged to pay Mr. Thomas’s wife, Ginni Thomas, for consulting work, but left her name off the paperwork.

Short sellers in focus as regional banks teeter

Shares in a group of closely watched regional lenders are rebounding this morning in premarket trading, led by PacWest and Western Alliance, after getting clobbered on Thursday. But analysts warn the upheaval is far from over, especially as short sellers continue to circle.

Shares in PacWest and Western Alliance plunged even as the lenders opened up their books to show that their deposit bases were relatively sound. Their finances are not the worry, analysts say. It’s that a crisis of confidence has swept through the sector since the fall of Silicon Valley Bank in March, compounding the risk that falling share prices will set off another round of bank runs.

From Wall Street to Washington, short sellers are under scrutiny. These investors, who profit from the falling share price of companies they target, have made roughly $7 billion in 2023 betting against regional banks, according to data from S3 Partners. “The other scary thing is that the attacks are increasingly looking speculative, but risk becoming self fulfilling,” wrote Jim Reid, head of global fundamental credit strategy at Deutsche Bank, in an investor note on Friday.

The White House press secretary, Karine Jean-Pierre, told reporters on Thursday that the Biden administration was closely monitoring “the short-selling pressures on healthy banks.”

Wall Street wants more. Wachtell Lipton Rosen & Katz, a prominent law firm that has represented businesses facing short-seller attacks such as the Adani Group, urged the S.E.C. to reinstate a 2008 emergency rule that placed a 15-day short-selling ban on banks. The firm also suggested bringing back the uptick rule, a trading restriction designed to limit volatile share price drops. “The country needs a prompt, tailored response by the S.E.C. to coordinated short attacks that are putting our economy at great risk,” the firm wrote in a statement. And, in a letter to the S.E.C. chairman, Gary Gensler, the American Bankers Association urged the regulator “to consider all its existing tools” to protect banks from short sellers.

Mr. Gensler has vowed to keep a close eye on any market misconduct. But an agency spokesman said the S.E.C. was not contemplating measures that would place limits on short selling.

The F.D.I.C. reportedly wants big banks to pay up. The agency will introduce in the coming days a new set of fees meant to replenish the Deposit Insurance Fund that was depleted by the bank runs at Silicon Valley Bank and Signature Bank in March, according to Bloomberg. Banks with under $10 billion in assets would be exempt from paying.

Nelson Peltz, the activist investor and C.E.O. of Trian Fund Management, has another idea for how to top up the fund: Customers with more than $250,000 in deposits should pay an insurance premium, he told The Financial Times.

“I think DeSantis would make a terrific president. If he’s the Republican nominee, I will strongly support him in 2024 … But I do worry that focusing on the woke issue as ground zero is not quite enough.”

— Peter Thiel, the tech mogul and prominent Republican donor, advising Gov. Ron DeSantis of Florida to campaign on economic policy rather than “identity politics” if he makes a run for the White House.

Apple defies the doomsayers

Apple topped first-quarter earnings estimates on the back of surging iPhone sales, expanding its reach into big emerging markets while navigating supply chain disruptions.

It was not all good news: Revenues declined for the second consecutive quarter, just the third time in a decade that the company has posted back-to-back falls. But shares are up more than 2 percent in premarket trading, after the company announced a $90 billion share buyback program and increased its dividend by 4 percent.

New markets and services powered growth. Sales in the U.S. and China fell, but Apple’s finance chief, Luca Maestri, said that growth in India, Indonesia, Latin America and the Middle East helped the company “offset some macroeconomic challenges.”

India is a particular focus. Apple has expanded manufacturing and last month opened its first retail store in the country of 1.4 billion. Executives mentioned India 20 times on a conference call with analysts, and Tim Cook, Apple’s C.E.O., called it a priority. “There are a lot of people coming into the middle class and I really feel that India is at a tipping point,” he said.

Mr. Cook had little to say about artificial intelligence. The tech earnings season has been dominated by questions about how A.I. fits into companies’ growth plans. Compared with Microsoft and Google, Apple has revealed far less about its vision for the tech. Mr. Cook acknowledged the huge potential but warned that it was necessary to be “deliberate and thoughtful” in how A.I. was implemented. “And there’s a number of issues that need to be sorted,” he added.

What next? The company is reportedly trying to diversify its supply chain away from China and is expected to unveil its long-awaited augmented reality device at its developers’ conference next month.

THE SPEED READ

Deals

• Silver Lake reportedly upped its bid for Software AG after Bain Capital submitted a rival offer. (Bloomberg)

• Alibaba is reportedly considering a U.S. initial public offering for its non-Chinese e-commerce business. (Bloomberg)

• Toronto-Dominion Bank and First Horizon killed their proposed $13.4 billion merger after struggling to win over regulators. (WSJ)

• Warner Bros. Discovery shares fell in premarket trading after the media giant reported a larger than expected quarterly loss. The good news: It expects its streaming business to turn a profit by year-end. (CNBC)

Policy

• The top intelligence chief, Avril Haines, warned that China and Russia would seek to exploit a U.S. debt default. (C-SPAN)

• President Biden is set to name Gen. Charles Q. Brown Jr., the Air Force chief of staff, as the country’s most senior military officer. (NYT)

• Hedge fund billionaire Louis Bacon was awarded $203 million in long-running defamation case against a disgraced Canadian fashion executive. (FT)

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