Stock Markets
Fed rate cut debate to heat up as US job market cools
By Ann Saphir
(Reuters) -Federal Reserve policymakers got more evidence of U.S. labor-market cooling on Friday that could boost their confidence they are winning their fight on inflation, and open the path to a more active debate on interest-rate cuts when they next meet in late July.
The Labor Department report showing a rise in unemployment and a decline in job creation is just the latest in a string of recent data offering more evidence of slowing than what U.S. central bankers had in hand at their June meeting.
At that time, many of them felt inflation progress was so lacking and the economy still so strong that they would likely cut rates only once this year, if at all. Since then, the data has marched in the opposite direction. A couple of inflation reports have shown prices did not rise at all from April to May; other reports have signaled a slump in services and manufacturing activity and rising job openings and layoffs.
Friday’s job report did not show big cracks in the labor market – indeed, job gains in June, at 206,000, outpaced economists’ expectations.
But the unemployment rate rose to 4.1%, and large revisions to prior-month estimates of job creation meant the average monthly payroll gain over the most recent three months has downshifted to 177,000.
That’s below the 200,000-a-month gain that Fed Governor Lisa Cook recently estimated the economy now needs just to keep up with immigration and other increases to the population.
Average hourly earnings were up 3.9% from a year earlier, and 0.3% from a month earlier, Friday’s report showed. That puts annualized wage growth for the last three months at about 3.6%, nearing a pace consistent with the Fed’s 2% inflation objective.
U.S. central bankers meeting July 30-31 are not expected to change their policy rate from the 5.25%-5.5% range it has been in since last July.
But the new data, which suggests the labor market is nearing a healthier balance, could put a rate cut at the following meeting in their sights.
“Overall, a moderation in payrolls in Q2 coupled with a rise in the unemployment rate and a slower growth path suggested by recent data bolster the case for rate cuts this year,” said Rubeela Farooqi, chief U.S. economist of High Frequency Economics. “We think the Fed could certainly start the discussion about cutting rates at the upcoming FOMC meeting, and lower the policy rate in September, if the data continue to show moderation.”
Fed policymakers at their June meeting signaled they see just one interest-rate cut this year, a forecast that pointed to a December start to any policy easing.
Fed Chair Jerome Powell said they would need to be confident inflation is heading to their 2% goal before cutting rates.
He also said any unexpected weakening in the labor market could also trigger a rate cut.
The increase in the unemployment rate last month from 4% still leaves that widely used gauge of labor-market health below levels historically associated with a downturn.
But the rising rate, which was 3.7% in January and 3.5% last July, paints an economy on a more fragile footing than the raw number might suggest. Unless it declines in July, it would trigger what’s known as the Sahm rule, an indicator for recession.
And while the post-pandemic economy has repeatedly bucked expectations and undercut long-held correlations, analysts are wary.
“We now have definitive evidence of U.S. labor market cooling with a somewhat alarming rise in the unemployment rate in recent months that should give policymakers ‘more confidence’ that consumer inflation will soon return to the 2% target on a sustainable basis,” said BMO Chief U.S. Economist Scott Anderson.
Powell is slated to address Congress on Tuesday and Wednesday, and investors will be paying close attention to his views on the latest data and what it means for the Fed’s policy path.
On Thursday investors will get the June reading on the consumer price index, which last month showed inflation had resumed its cooling trend.
Financial markets are pricing in a 78% chance of a September rate cut, up from about 72% before the June jobs report. Traders are also pricing in a second rate cut in December more firmly than previously.
In a turbulent market environment, Five9 (NASDAQ:) Inc’s stock has touched a 52-week low, reaching a price level of $28.74. This significant downturn reflects a broader trend for the cloud software company, which has seen its shares plummet by -58.79% over the past year. Investors are closely monitoring Five9’s performance as it navigates through a period of heightened volatility and shifting industry dynamics, which have contributed to the stock’s current valuation at this low point. The company’s efforts to rebound from this position will be under scrutiny in the coming quarters as market participants look for signs of a strategic turnaround or further indications of market pressures.
In other recent news, Five9 Inc . has achieved an annual revenue run rate exceeding $1 billion in Q2, a significant milestone despite lowering its annual revenue guidance by 3.8% due to customer budget constraints. The company’s adjusted EBITDA margin rose to 17% of revenue, contributing to a strong operating cash flow of $126 million. The company also confirmed plans to reduce its global workforce by approximately 7% by the end of 2024, a strategic move projected to cost between $12 million and $15 million.
Five9’s recent acquisition of Acqueon, a firm specializing in proactive outbound omnichannel customer engagement, aims to expand its AI offerings and bolster its growth. This move is in line with the company’s focus on managing expenses and improving profitability, with initiatives like FedRAMP and expansion into India anticipated to improve gross margins.
In their analysis, Piper Sandler maintained an Overweight rating for Five9, with a steady price target of $47.00, while Needham and BTIG both maintained a Buy rating with price targets of $48.00 and $45.00 respectively. These ratings reflect the firms’ confidence in Five9’s strategic positioning and potential for growth, despite the current challenges and workforce reduction.
InvestingPro Insights
Amid the current market conditions, Five9 Inc’s recent performance can be put into perspective with select data from InvestingPro. The company’s market capitalization stands at roughly $2.15 billion, indicating the size and scale of the business amidst its challenges. Despite the stock’s decline, analysts are showing a hint of optimism, with 20 analysts having revised their earnings estimates upwards for the upcoming period. This could signal a potential turnaround in sentiment or underlying business performance.
Importantly, Five9’s liquid assets are reported to surpass short-term obligations, suggesting that the company maintains a degree of financial flexibility to navigate its current difficulties. Furthermore, while the stock is trading near its 52-week low, it’s worth noting that the relative strength index (RSI) suggests the stock is in oversold territory, which can sometimes precede a rebound in share price. Investors looking for comprehensive analysis and additional InvestingPro Tips on Five9 can find more insights, including 14 other tips, at https://www.investing.com/pro/FIVN.
In terms of financial health, the company operates with a moderate level of debt and is expected to become profitable this year, according to analysts’ predictions. These elements may offer some solace to investors considering the stock’s substantial price fall over the last year. For those seeking a deeper dive into Five9’s valuation and future prospects, the InvestingPro platform provides a fair value estimate of $45.04, which is considerably higher than the current trading price, suggesting potential undervaluation.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
TD Cowen reiterated its Buy rating on shares of Terns Pharmaceuticals (NASDAQ:TERN), following the company’s investor call. The call was held to manage expectations for the upcoming Phase 1/2 CARDINAL study data for chronic myeloid leukemia (CML). The firm noted the challenges in measuring the efficacy endpoint (EP) due to disease progression and the absence of treatment switch guidelines, which makes major molecular response (MMR) a challenging efficacy endpoint for Phase 1/2 trials.
The interim Phase 1/2 data aims to evaluate descriptive efficacy signals, considering patients’ baseline BCR-ABL levels and treatment history. The analyst highlighted that the once-daily (QD) dosing and the lack of food effect could potentially enhance the quality of life for patients compared to other allosteric tyrosine kinase inhibitors (TKIs).
Terns Pharmaceuticals has been focusing on the development of improved treatment options for CML. The company’s approach to dosing, which does not require food intake, may offer a more convenient alternative for patients, potentially leading to better adherence and outcomes.
The topline data from the 6-month Phase 1/2 CARDINAL study is anticipated to be available in 2025. This data will provide further insights into the treatment’s efficacy and safety, which are critical factors in the ongoing development and potential approval process.
Investors and stakeholders in Terns Pharmaceuticals are expected to closely monitor the progress of the CARDINAL study, as it could have a significant impact on the company’s future prospects and position in the CML treatment landscape.
In other recent news, Terns Pharmaceuticals has experienced significant developments. The biopharmaceutical company reported robust earnings and revenue results, with Mizuho Securities maintaining an Outperform rating on Terns shares, citing strong enthusiasm for the company’s drug, TERN-701, a potential treatment for chronic myeloid leukemia.
The firm expects the first interim Phase 1 CARDINAL study data for TERN-701 in December.
Terns also announced the appointment of Elona Kogan as its new chief legal officer, a move that underscores the company’s strategic development and pipeline advancement.
The company also secured an extension of its office lease in Foster City, California, through 2027, reflecting Terns Pharmaceuticals’ operational stability and long-term planning.
In terms of clinical trials, Terns has made progress in its ongoing Phase 1 study of TERN-701, with interim findings suggesting the drug can be administered once daily with or without food.
This development, coupled with the forthcoming Phase 1 data for another of Terns’ drugs, TERN-601—an oral GLP-1 receptor agonist for obesity—expected next month, underscores the company’s commitment to innovative therapies.
These recent developments, from financial performance to executive appointments and clinical trials, highlight Terns Pharmaceuticals’ ongoing efforts to advance its strategic objectives and deliver on its mission. The company’s activities are closely watched by investors and industry analysts, including those from Mizuho Securities, who continue to support the company’s potential.
InvestingPro Insights
As Terns Pharmaceuticals (NASDAQ:TERN) navigates the complexities of its Phase 1/2 CARDINAL study, investors are keeping a keen eye on the company’s financial health and stock performance. According to InvestingPro, Terns holds more cash than debt, which is a positive signal for financial stability. Additionally, with five analysts revising their earnings upwards for the upcoming period, there is a sense of optimism about the company’s potential performance.
However, it’s important to note that Terns is not currently profitable and has been quickly burning through cash, which may raise concerns about long-term sustainability. The company’s P/E Ratio stands at -5.71, reflecting these profitability challenges. Despite these hurdles, Terns has managed a 1 Year Price Total Return of 45.42%, indicating some investor confidence in the company’s growth prospects. The anticipated fair value from analysts stands at 15 USD, while the InvestingPro Fair Value is calculated at 5.8 USD, highlighting a divergence in valuation perspectives.
For those looking for more in-depth analysis, additional InvestingPro Tips on Terns Pharmaceuticals can be found at https://www.investing.com/pro/TERN, offering a comprehensive look at the company’s financial details and stock performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
PARIS (Reuters) – French President Emmanuel Macron discussed the importance of maintaining support for Ukraine and the need for a ceasefire in Gaza during talks on Friday with German Chancellor Olaf Scholz, said the French presidency.
Regarding Ukraine, the two leaders expressed their determination to support the country “for as long and as intensively as necessary” in its war against Russia, the Elysee said.
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