Market Report:
📈 The August US Nonfarm Payrolls (NFP) report showed 142k jobs added, missing the forecast of 165k but higher than the previous month’s revised figure of 89k. The unemployment rate remained steady at 4.2%, in line with forecasts. Average earnings grew by 0.7% MoM and 3.8% YoY, exceeding expectations. The labor force participation rate held at 62.7%. Private payrolls added 118k jobs, below the forecast of 140k, while manufacturing payrolls decreased by -24k, significantly worse than the forecast of -2k.
💼 Billionaire hedge fund manager John Paulson said the Federal Reserve has waited too long to cut interest rates. He expects the Fed to lower rates in the coming months, forecasting the federal funds rate will be around 3-2.5% by the end of next year. Paulson has been mentioned as a potential Treasury Secretary if Donald Trump wins the presidency. He attended an event where Trump pledged to cut corporate taxes, reduce regulations and audit the government. A Bloomberg report said Trump advisers were considering ways to reduce the Fed’s independence, though Paulson said oversight is appropriate.
📊 Today, Fed’s Williams noted that while the Fed is moving in the right direction, it has not yet reached the 2% inflation target. He sees jobs data indicating a cooling economy and expects inflation to be around 2% next year, with unemployment settling around 3.75% in the longer run.
🔻 Williams is ready to start rate cuts, believing now is the time to lower the Fed funds rate, with traders pricing in a 55% chance of a 50 bps cut in September. Once again, the debate is about a 25 bp or a 50 bp cut. Risks include further weakening in the jobs market and slowing global growth. Williams emphasized that Fed policy has been effective in restoring price stability and that independent central banks achieve goals better.These last words, in clear allusion to Trump’s recent words, which call for more control over the central bank.
📉 Yesterday, Treasury Secretary Yanet Yellen noted that the July unemployment rate (4.3%), while the highest in three years, is still historically very low.
🇪🇺 In Europe, the ECB faces softening growth and persistent underlying inflation pressures. Recent data showed the economy expanded less than initially reported in Q2 while wage growth slowed. Debate will intensify as rates approach estimates of the neutral level around 2.25-2.5%. A September cut is consensus but the path beyond will be hotly debated given mixed signals.
📊 According to a Bloomberg survey, the majority of respondents do not expect the ECB to make more urgent cuts given the poor data in Europe, but rather to continue with the established plan of gradual cuts.
💸 China’s state-run banks have built a $100 billion short position against the US dollar through foreign exchange swaps to support the yuan.The large short dollar position through swaps is exposing China’s banks to potentially huge losses if the yuan weakens significantly. However, the strategy is enriching hedge funds and other investors who have taken the long dollar side of the massive FX swap trades.
🛢️ Oil prices are on track for one of their biggest weekly losses this year, with Brent near $73/barrel and WTI below $70/barrel. This is despite OPEC+ delaying a planned increase in production, and maintaining its long-term plan to restore 2.2 million bpd of idle supplies by 2025. Concerns over the Chinese and US economies have fueled fears over demand, adding pressure alongside rising US crude output. If oversupply occurs, analysts consulted by Bloomberg expect oil prices to fall to $60 a barrel in 2025.
Market View:
📉 Although the US employment data has not been extremely surprising and rather fits the Fed’s narrative of a slowly cooling labour market, stock markets do not seem to receive the August non-farm payrolls (NFP) data in a positive way. The S&P 500 fails to hold above the 5500 level and is currently below it. Similarly, the Nasdaq 100 also continues to weaken and has been pressuring the 18700 support in the last hours.
📊 The DXY index is responding with high volatility in recent hours; it has moved from 100.50 to 101.40 points and remains relatively strong at 101.15. The EURUSD has also seen full-figure moves in the last few hours and is trading around 1.1090. The same volatility has been experienced by US bond yields. The 2-year bond rallied above 3.80% and is now back to the 3.70% area.
🇪🇺 In Europe, the DAX 40 fails to hold support at 18,600 points and is currently falling to the 18,500 point area.
Geopolitics:
🇫🇷 France. New French PM Michel Barnier made a plea for political unity and respect between factions after snap elections left no majority. Barnier will speak with Le Pen this week as he consults leaders, seeking to avoid votes of no confidence. He listed priorities of public services, education, security, immigration, jobs and living standards. Barnier faces challenges of uniting ideological divides in his cabinet and navigating demands on pensions and wages. The New Popular Front threatens to immediately propose votes of no confidence if not included in government. Markets will watch closely as France’s debt and deficits remain elevated after the elections increased fiscal risks.
🇺🇸 Trump pitched aggressive pro-business and pro-domestic production policies. He pledged to cut the corporate tax rate to 15% for domestic manufacturers and audit the federal government, embracing ideas from Elon Musk. He said the corporate rate cut would incentivize production in the US while auditing the government could find efficiencies. Other proposals included eliminating 10 regulations for every new one, tariffs to fund a US sovereign wealth fund, and declaring an energy emergency to boost domestic production.
