Nick Spencer-Skeen, Senior Executive Officer, Lunaro Markets Limited
Friday Closing Prices
- S&P 500 7,719 (-0.38%)
- Nasdaq 26,507 (-0.29%)
- Gold $4,430 (-0.96%)
- Brent Crude Oil $95.78 (-0.01%)
Last week was largely defined by a stronger-than-expected US employment report, prompting market participants to reassess expectations for Federal Reserve (Fed) policy. Labour market conditions, alongside inflation trends, remain central to the Fed’s assessment of the appropriate path for interest rates.
August Nonfarm Payrolls (NFP) rose 162,000, comfortably above every estimate in the Bloomberg survey and nearly three times the consensus forecast of 55,0001. July’s previously reported job losses were also revised away1. The unemployment rate held at 4.1%, reinforcing signs that labour market conditions remain resilient despite expectations for a gradual cooling in economic activity. Rates markets carried the clearest reaction. Traders moved to price in 15.5bps of tightening for the September Fed meeting, implying that market participants viewed a rate hike as more likely following the stronger-than-expected employment data.2 . The move added to an already difficult backdrop for global fixed income, with developed-market government yields sitting around multi-decade highs.
Stocks came under pressure following Friday’s jobs report, but still managed to finish the week higher. The S&P 500 gained 1.1%, and the Nasdaq 100 rose 1.6%, with the tech sector leading2. However, Broadcom’s post-earnings decline provided provided another example of investors responding cautiously despite continued strength in AI-related revenue growth3. After reviewing volatility during our webinar on Wednesday, the VIX fell 11% across the week, suggesting near-term hedging demand remained subdued2.
Commodities performed better despite the late-week rates shock. Gold found support around $4,300 to close the week above $4,400, helped by earlier dollar weakness and geopolitical demand, while oil also finished the week higher than where it started2.
CPI Holds the Key to September
Just as traders waited patiently throughout the week for Friday’s data, they’ll have to do the same this week until Friday’s August Consumer Price Index (CPI) inflation report. It marks the final major data point before the Fed’s September 15/16th meeting and could could play an important role in shaping expectations ahead of the September policy meeting. Economists expect headline CPI to rise 0.4% m/m, while core inflation is seen increasing 0.2%, after July showed headline inflation at 3.4% y/y and core at 2.5%4,5.
The hurdle for markets has changed materially following August payrolls. With the strong numbers, another firm inflation print would strengthen the case for tightening and likely push front-end Treasury yields and the US dollar higher.
Of course, a softer core reading would give dovish Fed members a reason to push back any potential hikes to later in the year. That’s why it’ll be worth looking beyond the headline inflation print and seeing whether underlying services and core price pressures continue to moderate.
ECB Approaches Potential End of Tightening Cycle The European Central Bank (ECB) meets on Thursday with markets almost fully expecting a 25bp rate hike2. This would take the deposit rate to 2.50%6.
The ECB has already increased rates this year, with a September move being strengthened after euro-area inflation accelerated to 3.3% in August7. A key factor in this was higher energy prices, adding to concerns that the Middle East conflict could keep headline inflation elevated for longer.
Given traders are anticipating a move, the hike itself is therefore unlikely to be the main market mover. Instead, attention will centre on Christine Lagarde’s guidance and the ECB’s updated economic projections, particularly whether policymakers leave the door open to further tightening. A Reuters poll suggests most economists expect this to be the final hike of the cycle, making any pushback against that view potentially significant8.
Any comments that signal September completes the cycle could provide some relief to bonds and rate-sensitive stocks.
Apple Gears up for iPhone Launch
Apple is holding a launch event on Wednesday, which is expected to reveal the new iPhone9. It is the company’s first major product event under new CEO John Ternus, with investors looking for evidence that Apple can sustain last year’s strong upgrade cycle and spark a growth story increasingly questioned by its slower progress in AI.
Attention will centre on the iPhone 18 range and a potential first foldable iPhone. The latter could be particularly important for the stock because a higher-priced device would support average selling prices and profit margins. Yet it’ll also give Apple a new premium product category in an otherwise shrinking global smartphone market.
As is the case each time, expectations for the launch event are high. For a company now valued at $4.67 trillion, it’s easy to see why.
