Non-Farm Payrolls – Preview

NFP preview: April jobs number may mask the economic chaos

The market is expecting a solid jobs report for April. US non-farm payrolls are expected to expand by 138k, and the unemployment rate is expected to remain steady at 4.2%. Average hourly earnings are expected to nudge higher to 3.9% YoY, from 3.8%.

This report is likely to suggest that the US labour market, although slowing, is far from falling off a cliff. However, there could be signs of the slow down to come and it is worth noting the breadth of job creation. There are concerns that job growth is narrowing, as a growing number of sectors scale back hiring due to heightened economic uncertainty caused by President Trump’s tariff policies. Declining tourism could hit job creation in the leisure and hospitality sector, while transport and logistics jobs could have been hit in March due to the first wave of tariffs implemented in February. Since tariffs have only increased since then, and with news that container shipments from China to the US slowed sharply last month, we can expect more jobs in transport and logistics to be shed in May.

Government hiring is also expected to shrink for April, with only two sectors expected to see job increases: construction and business and professional services, which both tend to see a seasonal increase in hiring in April.

Dollar strength may get boost from decent payrolls data

May’s jobs report could be significantly weaker than the April report, which is why the market reaction to any upside surprise later today, could be limited. However, a strong labour market report could delay any rate cuts or dovish commentary from the Fed when they meet next week. Instead, the Fed could wait until June to adjust policy. Overall, this could support the dollar, which has strengthened so far this week. The dollar index broke above the 100.00 level on Thursday, led by USD/JPY, which rose more than 1.6%, as the Japanese currency crumbled after a dovish BOJ. Momentum is to the upside for the USD, and this may continue if we get a decent payrolls report.

Apple results overview: sales take a hit as demand withers in China as trade war with US heats up

The backdrop to this NFP report is one where Apple, the world’s largest company by market cap, has seen its share price tumble after reporting earnings for last quarter. The stock price fell by more than 4% in post market trading late on Thursday, after reporting earnings that disappointed the market.

The headline numbers were better than expected, but it was what lurked beneath them that spooked investors. Revenue was $95.35bn, beating expectations of $94.58bn, and earnings per share also exceeded estimates, it was $1.65, vs. $1.62 expected. However, this was not enough to stem the bearish sentiment. There was a slowdown in sales to China, and the costs associated with US tariffs also started to mount.

Apple’s problems in China more than just trade wars

China sales fell 2.3% last quarter, to $16bn. This could be the start of a prolonged trend, as China encourages its consumers to buy local, rather than American. Apple is losing market share to Chinese brands, which is a concern since the Asian powerhouse was once a growth market. The question for investors is what can replace China for Apple? This is not an easy question to answer and could threaten the long-term trajectory of Apple’s growth plan.

Compared to some of the auto makers, the $900mn hit to Apple’s cost base as a result of US tariffs seems fairly moderate. In fact, tariffs could be the least of Apple’s problems. The weakness in growth in China is also fueled by a lack of ambition when it comes to AI features, which are lagging behind their peers. Apple has not rolled out its AI features embedded in its latest iPhone in China yet, and this could be another reason why consumers are turning their backs on the brand. There is also a lack of new features in iPhones which may also be off-putting for Chinese consumers. Thus, it could be structural issues at Apple, rather than pure tariff fears, which are weighing on the stock price as we move to the end of the week.

The magnificent 7 start to fragment

US tech giants have not been moving in unison this earnings season. Microsoft and Meta posted stunning results, and saw large gains in their share prices, while Apple is floundering. Likewise, Google also had a strong Q1 and Nvidia is expected to follow suit when it reports results later this month. For now, its each tech giant to themselves. The Magnificent 7 seem less like a homogenous group these days, and instead their stock prices will be driven by their unique business identities. Some companies are more exposed to tariffs, for example Apple, compared to others like Microsoft.

Apple has balance sheet strength to weather storm

The positive for Apple is that its balance sheet is still in an enviable state. Gross profit margins increased to 47.1% last quarter, up from 46.9% the quarter before. The company reported operating cash flow of $24bn last quarter, which is stable, and suggests that for now, the tariff disruption is not causing the company to burn through its cash.  It boosted its share buyback programme and its dividend, however, that has not placated the market. Apple needs to do something to turn its fortunes around, as net sales fell for its iPhone division, Mac and iPad sales were also lower QoQ. Services revenue was also lower, while wearables like the Apple watch, saw net sales rise QoQ.

Overall, this was a weak earnings report for Apple, and its shares are paying the price.

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