Digest
Friday’s US labour‑market update turned into a bit of a confusing puzzle, keeping traders on the edge of their seats. With the debate over whether the Fed will trim rates by 25 basis points (bp) or 50 bp still very much alive, investors are now craving more easing than what’s actually in the pipeline. The result: a short‑term bump in risk sentiment.
Where We Stand
Participants walked into Friday’s session with high hopes that the August jobs report would finally tell us how big the planned Fed cut at the September FOMC would be.
They bubbled out of the meeting, only to find the Fed’s pre‑meeting “black‑out” period looming – and the market outlook still as murky as a foggy London morning.
- Job numbers – The US added 142,000 new positions last month, close to the 165,000‑person consensus. However, the prior two prints were revised down by 86,000, a real‑world “bitter pill” for those counting on a steady rally.
- Unemployment – The rate slipped 0.1 percentage point to 4.2%, unraveling the temporary weather‑induced dip seen in July.
- Earnings – Wage growth jumped 0.4% month‑over‑month – double what we saw in July. That’s a friendly reminder that inflationary pressure hasn’t finally faded into oblivion.
Bottom line: the data didn’t crack the rate‑cut mystery wide open. Instead, it left markets humming a tune of caution, ooh‑yeah, let’s keep an eye out for more easing beats before the Fed actually drops the needle.
Fed Policy Showdown: Hawks vs Doves
The Fed’s policy debate feels a bit like an awkward family dinner: the hawks are pushing for a modest “cookie‑crumb” rate cut, while the doves are demanding a full‑on “bread‑whole” reduction. Let’s break it down.
What the Fed Leaders Says
- Williams & Waller: “Now’s the time to start trimming the rates, but we’re not yet deciding whether the first bite is 25bp or 50bp.”
- Both keep it vague, which is exactly what the market loves – a little uncertainty keeps the engines running.
Short‑Term Jitters for Risk Assets
- The ball‑parking crowd expects a 50bp jump and a quick start on easing.
- But the reality is likely a 25bp cut next month – a mismatch that could dent stocks leading up to the Sep 18 FOMC deadline.
- With investors unsure whether Powell & co. will deliver the sweeter reduction, market sentiment takes a little hit.
Long‑Term Take‑away: Plenty of Room to Rumble
- Fed’s policy levers still have >500bp of space left if conditions call for more easing.
- The “Fed put” (the comforting promise that the Fed can jump in when needed) stays intact, keeping risk‑seeking investors on the fence for useful buying opportunities.
Friday’s Market Swirl – Noise Over Signal
Active traders were trying to read the day’s price action, but it’s mostly noisy chatter. The takeaway? Tune out the jerky moves and hone in on the bigger trends.
- Stocks slumped – the S&P futures logged a four‑day run of losses, yet they still held on to the 100‑day moving average.
- Treasuries went higher across the board, especially the front end. Benchmark 2‑year yields dropped a solid 10bp, hit the lowest levels of the year.
Bottom Line
It may feel like we’re riding a rollercoaster, but the only real direction is toward a measured easing approach. Pick your timing wisely, and remember: the market’s big swings usually mean you’re looking at short‑term noise – keep your eyes on the long‑term train.
Gold’s Rough Ride this Friday
Gold tried to bail out but ended up in the red, slipping back below $2,500 per ounce. That dip felt like a little liquidation scare – traders decided to take profits on the day.
Dollar’s Unchanged Stance
The US dollar didn’t budge against its usual squad, even though it swayed wildly during the session. With the Fed’s tone going “dovish” to an almost record low (the USD OIS curve now looks like a week‑long discount of about 115 basis points), many think the dollar might get a stronger lift if these expectations tighten again.
Labour Market & Policy Outlook
Friday’s numbers show the job market slowly easing out of the peak. That suggests monetary policy should start cooling too. But what “policy” should do isn’t guaranteed to match what it’ll actually do.
We won’t see that answer for roughly ten trading days, so expect a bit of market riding‑the‑wave and volatility for the next week or so.
What’s on the Horizon?
- A quiet start to the week with no headline “big‑winners” on the European or US stage.
- The lone noteworthy release: the NY Fed’s monthly inflation expectations survey. Last month, consumers looked ahead at a 2.97% inflation guess for next year, and a 2.3% 3‑year guess – the lowest since the survey began in June 2013.
- Citizens will probably shrug at this data, but the real buzz is coming from US CPI Wednesday and ECB Thursday’s decision.
Apple’s iPhone Reveal – ‘Glowtime’
Apple’s annual launch, dubbed “Glowtime,” is going to pop the headlines. AI will be front‑and‑center, making every old‑school iPhone owner wonder: “Do I even need this gadget anymore?” The hypothesis is that people will buy on rumor, sell on the actual product. Classic AAPL trend: out of 17 launch days, the stock slid down on 12 of them.
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