Market Report.
💼 The August jobs report showed new payrolls came in more than one-third below expectations, indicating a significant slowdown in job growth. However, the rise in the unemployment rate to 4.3% was largely due to a 436,000 increase in the size of the labor force, rather than widespread layoffs. A 25 basis point rate cut is now seen as virtually certain at the upcoming Fed meeting. The weaker jobs report has severely wounded the U.S. economy, prompting expectations that the Fed will need to provide more aggressive monetary policy support through larger interest rate cuts.
⚖️ Treasury Secretary Scott Bessent expressed confidence that President Trump’s tariff plan will be upheld by the Supreme Court, but warned that the government would have to issue massive refunds if the tariffs are struck down. Bessent said that if the tariffs are ruled illegal, the government would have to refund about half of the $750 billion to $1 trillion in tariffs that have already been collected, which he described as “terrible for the Treasury.”
🇯🇵 Japanese Prime Minister Shigeru Ishiba has announced he will step down, following weeks of calls for his departure after a second national election setback for his ruling coalition. Ishiba’s resignation will set off a leadership race within the Liberal Democratic Party (LDP) that may generate concerns for investors and fuel uncertainty in the coming weeks. Ishiba’s departure is likely to put upward pressure on long-term Japanese government bond yields, as he was known for his fiscal discipline. A more fiscally dovish successor could lead to a weaker yen and declining stock prices.
📈 At least the data published today by Japan has a positive tone. Japan’s GDP growth exceeds expectations with a Q2 growth of 0.5% above the expected 0.3%, projecting an annualized figure of 2.2% growth compared to the expected 1%. One of the main fears for the Japanese economy was high inflation with a slowing economy, one of those two problems seems to have dissipated.
🇪🇺 The ECB is expected to hold interest rates steady for a second straight meeting on Thursday, as the economy is holding up and the recent U.S.-EU trade agreement has reduced uncertainty. There is debate over whether the ECB is done cutting rates this cycle. Some economists believe the bar for further cuts is high, while others see potential triggers like a bigger-than-expected growth hit from tariffs or lower inflation.
📉 Our position is clear on this matter. The ECB cannot continue with rate cuts unless inflation falls again. The reason is that continuing to lower rates under current conditions will push real interest rates into the negative. This will encourage euro deposit outflows, generating another currency crisis similar to the one in 2012.
🇫🇷 France’s fourth prime minister in three years, François Bayrou, faces almost certain defeat in a confidence vote on Monday, tipping the euro zone’s second-biggest economy further into political uncertainty. The political turmoil also threatens France’s ability to rein in its debt, with the risk of further credit downgrades looming as bond spreads widen. After the ouster of Bayrou, President Macron will likely face the task of finding yet another government chief capable of steering a budget through parliament.
🔗 Most observers expect Macron to next look for a candidate from the center-left Socialist party, but this would require forging a delicate alliance with his own liberal bloc, which opposes many left-wing ideas.
💭 This is a good time to remember that the party with the majority of votes in France once suggested that France leave the euro. In early 2017, Marine Le Pen outlined comprehensive plans for France to leave the euro should she win that year’s presidential election. She proposed that Europe could return to a parallel ECU-like common currency system to soften the economic impact of such a departure.
📉 China’s exports growth slowed to a six-month low in August, as the brief boost from a tariff truce with the U.S. faded. However, demand from other markets provided some relief to policymakers. Exports rose 4.4% year-on-year in August, missing forecasts and marking the slowest growth in six months. Imports grew 1.3%, also below expectations. Policymakers are counting on manufacturers to diversify into other markets like Asia, Africa and Latin America to offset the impact of U.S. tariffs, though no market can match the consumption power of the U.S.
🍽️ Trump hosted a dinner at the White House with tech executives. Now he has threatened to launch a trade investigation to “nullify” what he says are discriminatory fines being levied by Europe against U.S. tech firms like Google and Apple. The president complained that Europe is “effectively taking money that would otherwise go to American Investments and Jobs” through these fines and taxes on U.S. tech companies. He cited figures of $13 billion in “false claims and charges” against Google, and $17 billion in fines and back taxes against Apple, though the sources of these numbers are unclear.
🛢️ OPEC+ has agreed to increase oil production again next month, as the group continues its policy shift towards higher output volumes after years of defending prices. This production increase will continue until September 2023, as OPEC+ accelerates the unwinding of its next tier of supply cuts. In total, 1.65 million barrels per day that was supposed to be kept off the market until the end of 2026 will now be restored much sooner. The faster-than-expected unwinding of supply cuts could potentially drive oil prices below $60 per barrel.
🇷🇺 Russia’s withdrawal from the Western financial system following the sanctions appears irreversible. Russia is beginning financing processes in Chinese bonds priced in yuan. China is moving to resume its domestic bond market to top Russian energy companies, signaling closer economic and diplomatic ties between China and Russia. Chinese regulators told Russian energy executives at a late August meeting in Guangzhou that they would back plans for Russian companies to issue renminbi-denominated “panda bonds” in China’s public bond market. Putin secured a major gas deal that would tie Russia’s Gazprom to China through the Power of Siberia 2 pipeline.
✍️ Trump, who claimed during the election campaign that he was the only option to avoid a world war, and who claims the title of Nobel Peace Prize winner for it, has signed an executive order to restore the name “War Department,” arguing that it conveys a message of “victory” and “strength” that had been lost.
Market View.
📈 US futures surged on Friday following disappointing employment data. Mini S&P 500 futures reached new all-time highs, climbing above 6,530 points, but retreated by the close of the session, finishing below 6,500. Nasdaq futures managed to surpass 23,900 points but fell back to the current 23,755.
💵 The dollar weakened, with its DXY index remaining trapped within a range, rebounding upwards after dropping below 97.60 points, currently standing at 97.77 points. This caused the euro-dollar to exceed 1.17, even reaching levels close to 1.1760; however, it also retraced and is currently at 1.1720.
📉 European equities nearly lost all the gains made by the close on Friday. DAX 40 futures, which had attempted to reclaim 24,000 points, have retreated and are currently at 23,750 points. Eurostoxx 50 futures approached 5,380 points during Friday’s session but fell back and are now trading at 5,350 points.
🛢️ Oil experienced a significant drop following the OPEC meeting, which announced an increase in supply. We have explained the details in the news section. Brent crude fell close to the $65 mark before rebounding to the current $66.75. So far this month, crude has suffered a decline of nearly 6.5%.
💰 Gold futures surpassed $3,650 per ounce on Friday but have since retreated to the current $3,635.
💻 Bitcoin exceeded $113,400 during Friday but has fallen back to the current $111,145.
