Fragile risk appetite as US data boost Fed cut bets

US jobs data cement the Fed rate cut

Friday’s US data releases confirmed expectations for an eventful end to the first week of September. The 22k increase in nonfarm payrolls (NFP) – marking the first time since mid-2010 that there have been four consecutive NFPs prints below 100k - cemented the 25bps Fed rate cut on September 17 and widely opened the door to a larger move.

Despite the bid into Friday’s closing hour, US equities did not enjoy the weak labour data, potentially due to fears that the US economy is aggressively slowing down. The Nasdaq 100 led the rally last week with a tiny 1% rise, reflecting an uneasy mood among equity investors. The picture was brighter in the cryptocurrency world, with most of the major cryptos recording gains on a weekly basis, apart from Ether.

Next key events to determine the size of the Fed rate cut

Last week’s US data prints, predominantly Friday’s jobs data, have prompted an array of revisions from investment banks regarding Fed expectations. Several major houses are now forecasting three 25bps rate cuts in the three remaining meetings in 2025, while a small minority is betting on a 50bps rate move in 10 days’ time.

The bar for such a rate cut appears to be high at this stage, but there are two key events this week that could tip the scales in favour of such an aggressive move: (1) Tuesday’s preliminary revision in BLS employment that could substantially reduce the 625k increase recorded in nonfarm payrolls so far in 2025, and (2) Thursday’s August CPI report. A combination of much weaker jobs creation and evidence that tariffs are not fueling price pressures could prove pivotal for next week’s FOMC decision.

Notably, investors should not expect any Fedspeak in the run up to the Fed meeting as usual blackout period commenced on Saturday, September 6.

Political risk in the spotlight today

Despite the stronger GDP report for the second quarter of 2025, markets are digesting PM Ishiba’s resignation. The lack of a majority in both Upper and Lower Houses proved to be the final nail in the coffin for Ishiba’s premiership. An LDP leadership contest is set to take place on October 4, with investors denting the chances of another BoJ rate hike in 2025. The yen started the week on the back foot, while, at the same time, Japanese stock indices have gapped higher, most likely reacting positively to the possibility of a looser fiscal stance going forward.

Moving to the eurozone, and another French government is set to fail and collapse today. Barring a major surprise, PM Bayrou is expected to lose tonight’s confidence called on the recent budget proposals, with President Macron once again forced to explore other options. There are reports he might try to reach out to the Socialist party, but with Le Pen’s National Rally and the left-wing New Popular front holding more than 320 seats in the parliament, Macron’s attempt might prove fruitless. Interestingly, despite the mixed newsflow, euro/dollar ended last week in positive territory, and is edging higher at time of writing.

Gold and oil rise; geopolitics play a key role

With US President Trump once again using harsher rhetoric against Russia, and China continuing to buy gold, the precious metal recorded a new all-time high and is now hovering a tad below $3,600. The prospects of a more aggressive easing strategy by the Fed and the lack of considerable progress in both Ukraine-Russia and Israel-Hamas conflicts, are boosting gold.

Meanwhile, Saudi Arabia has won this round, with the OPEC+ alliance accepting to boost output by 137k barrels per day in October. Interestingly, oil has completely ignored the stronger supply announcement, focusing instead on the prospects of further US sanctions on Russia, with oil prices rising towards the $63 level today.