Treasury Yields Just Reminded Everyone That The World’s Biggest Bond Market Isn’t A One-Way Street

Plus, the Labor Department’s job’s report, the Trump Administration’s plans to release Fannie Mae and Freddie Mac from federal control, and why shares of Lululemon and DocuSign are surging higher.

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Stocks rose slightly Friday morning with the Dow adding 52 points, or 0.2%, on the open. The S&P gained 0.15%, while the Nasdaq traded flat.

The Labor Department was out with its jobs report this morning following the ADP report yesterday, reporting the U.S. added 130,000 non-farm payrolls in August, falling short of Wall Street estimates for 150,000. Employment in the federal government rose by 28,000—including 25,000 temporary workers for hired for the 2020 Census—in August, while private sector employment was up by just 96,000, the lowest pace since February. “The weaker than expected job gains do make sense when looking at yesterday’s ISM and Markit figures on employment and just understanding how businesses respond to the slowing pace of growth and trade worries,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “Companies have taken a time out on hiring until visibility becomes less cloudy, it’s only prudent.” 

If the jobs report leaves you unsure about its implications for Fed policy, Chairman Jerome Powell may take the opportunity to explain in his speech this afternoon from Zurich. Fed officials are weighing two competing forces heading into their September meeting: the strength of the U.S. consumer versus the uncertainty around the trade war and weaker global growth that’s roiled markets since the central bank’s last meeting. While the Labor Department’s report was decent if less robust than hoped in August, many traders saw it as cementing the case for the Fed to reduce rates again later this month. But Candice Bangsund, portfolio manager at Fiera Capital, warned that the market may have gotten ahead of itself in pricing in multiple rate cuts. “The headline number was a mixed bag – something for both the hawks and the doves,” Bangsund said. “What was encouraging is the jump in hourly earnings, particularly for inflation backdrop. We’re likely to see another insurance cut in September and it’s largely priced in. It may be a bit of a hawkish cut in that the Fed will signal in that it’s not the beginning of [an] easing cycle and going forward they’ll be in a wait and see mode. The numbers in the U.S. we’ve been seeing isn’t consistent with a) the recession and b) four rate cuts the market is pricing it.”

Two-year Treasury yields surged on Thursday, after August’s historic drop that made it seem as if the world’s biggest bond market was a one-way street. Yields jumped as much as 14 basis points before pulling back to 11 points. The sell-off was global, with German 30-year rates briefly turning positive after a month in negative territory, and yields in Australia and New Zealand climbing in Asia early Friday. Optimism around the new negotiations between the U.S. and China initially got bond markets moving, and a deluge of corporate bonds from the likes of Apple and Disney flooded the market with supply, driving up yields. “Treasuries are not a one-way trade, even as the trend is for lower yields,” said Scott Buchta, head of fixed income strategy at Brean Capital. “It’s a risk-on related move today given trade-talks are back on. But the backdrop of the high level of corporate issuance is also adding some volatility and putting upside pressure on Treasury yields.”

The Trump Administration laid out its vision for releasing Fannie Mae and Freddie Mac from its decade of federal control, issuing a long-awaited plan that marks the government’s boldest step yet toward closing one of the final chapters of the 2008 financial crisis. The Treasury Department’s proposal suggests dozens of reforms to protect Fannie and Freddie from another housing crash, shrinking their dominant market share, and creating new competitors to the companies that own around $5 trillion of home loans. Analysts said the proposal represents progress, but cautioned that it also offered few details, and warned that any change will likely take a long time and likely depends on bipartisan efforts in Congress as well as President Trump winning re-election. House Financial Services Chair Maxine Waters expressed concern, saying yesterday that the proposal would hinder homeownership and could cause “significant damage for low-income persons and communities of color.” Shares of Fannie Mae are down more than -13% early Friday, while shares of Freddie Mac are down -12%.

Shares of Lululemon are up more than 6% Friday morning after the athletic apparel maker reported quarterly results that beat Wall Street estimates after the bell Thursday. LULU said revenue jumped 22% to $883.4 million during the second quarter, while analysts expected $846 million. The company also reported comparable sales rose 15% during the quarter, while direct-consumer revenue rose 30% representing 24.6% of total sales. “We’re pleased with the ongoing strength across our business,” said CEO Calvin McDonald. “Our success demonstrates the significant runway in front of Lululemon.” Shares of enterprise cloud company DocuSign are up nearly 20% Friday after it reported better than expected revenue and strong guidance. For its second quarter of 2020, DocuSign reported $236 million in revenue, crushing consensus estimates of $221 million, and raised its outlook for the full year for revenue to between $947 million and $951 million. And shares of Beyond Meat are down -3.65% after D.A. Davidson rated the plant-based meat company an “underperform” with a price target -16% below the current price. The firm said its view does not reflect a negative view of the company or its ability to execute, but rather the size of Beyond Meat’s total addressable market and the actual number of return purchasers.

Stocks We’re Watching

Edesa Biotech (NASDAQ: EDSA): Shares of this biotech jumped were up as much as 83% yesterday after it the company announced that Health Canada signed-off on a clinical trial evaluating topical cream EB02 for the treatment of internal hemorrhoids. “Health Canada’s approval to begin clinical trials represents a significant milestone in our goal of demonstrating the broad potential of our novel non-steroidal anti-inflammatory technology,” said Edesa CEO, Dr. Par Nijhawan, in a press release. “Based on our analysis of clinical data in dermatitis, there’s good reason to believe that EB02 may be effective in treating the erythema, swelling and exudation associated with hemorrhoids.”

Copart Inc (NASDAQ: CPRT): Shares of this online used car auctioneer are up more than 7% this week after it said it is “doubling down” on growth in its earnings release late Wednesday. In its fiscal fourth quarter, Copart reported a jump in earnings of 43% to $0.60 per share on revenue of $542.6 million. The company’s full year earnings grew 31%, while sales rose 13% to $2 billion. “It’s damn impressive,” CEO Jay Adair said on Copart’s earnings call yesterday. “I’ve never seen Copart in a better position to seize the future.”

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