• US August non-farm payrolls +142K vs +160K expected
• Canada August employment change +22.1 versus +25.0K estimate
• FOMC Waller : Time has come to begin reducing. Labor market softening/not deteriorating
• Waller Q&A: Forecasts could be wrong, must be nimble as data comes in
• Fed’s Goolsbee: Critical challenge is not letting things turn into something worse
• Fed’s Williams: Unemployment rate still low despite rise
• Williams Q&A: Jobs data consistent with a cooling economy
• More from Fed’s Williams: Not quite ready to say how big first rate cut should be
• Canada Ivey PMI 48.2 vs 57.6 prior
• WSJ’s Timiraos: Waller does not explicitly say „25“ or „50“, but leans to 25.
• Timiraos: The jobs report doesn’t neatly resolve the 25 versus 50 basis point debate
• The Federal Reserve blackout starts at midnight

Markets:

• Gold down $20 to $2496
• US 10-year yields down 1.4 bps to 3.72%, 2-year yields down 9.3 bps to 3.65%
• WTI crude oil down $1.07 to $68.08
• S&P 500 down 1.7%
• JPY leads, AUD lags

Non-farm payrolls Friday lived up to the hype, though it wasn’t exactly straightforward. The kneejerk reaction to the report was dovish and the US dollar sold off significantly as 50 bps cut odds rose to 57%. In that move the euro rose to 1.1154 from 1.1105 and the pound rose 60 pips to 1.3240.

It took about an hour for those moves to fade completely as the market took a second look at the jobs report and started having questions about whether the headline miss and revisions were enough to make up for a slightly improved unemployment rate. The retracement was compounded by Williams, who offered little in the way of a push for 50 bps, instead playing it safe.

The next big move came with the Fed’s Waller. Initially the market latched onto his talk about front loading cuts:

I will be an advocate of front-loading rate cuts if that is appropriate.

However the market then took a look at the totality of the speech and particularly a line saying the „labor market is softening but not deteriorating.“ That led to a drop in 50 bps cut odds to 23%.

But there is always reflexivness in markets and that, in turn, caused a rout in stocks and a flight to safety in bonds. That’s a classic case of market kicking-and-screaming that pushed 50 bps odds back up to 31%. For his part, Timiraos weighed in on the 25 bps side but I certainly wouldn’t take that as a leak, though it probably moved markets.

The major volatility in the day came in USD/JPY, which ranged from 141.79 to 143.89 and ultimately finished about 50 pips from the lows. But there were 5 touches on either side of that range as the remarkably-volatile trading continues. Eyes will be on Japan at the open on Monday after a tough week for the Nikkei.

The US jobs report wasn’t the only one released as Canadian unemployment ticked up to 6.6% from 6.4% and is now two percentage points above the lows. The lack of 50 bps from the BOC this week is a troublesome sign of central banks that are behind the curve and a close in brent at the lowest since 2021 certainly doesn’t help the loonie’s case.

This article was written by Adam Button at www.forexlive.com.

This looks like a double top in the S&P 500 and now you have to ask if we will go down and test the August low or consolidate here. The chipmakers certainly aren’t sending a great signal with NVDA down to $102.

On the day:

• S&P 500 -1.7%
• Nasdaq Comp -2.5%
• DJIA -1.0%
• Russell 2000 -1.7%
• Toronto TSX Comp -0.8%

On the week:

• S&P 500 -4.2%
• Nasdaq Comp -5.8%
• DJIA -2.9%
• Russell 2000 -5.4%
• Toronto TSX Comp -2.3%

This article was written by Adam Button at www.forexlive.com.

None of how the market is acting today in reaction to the lack of a strong 50 basis point signal from Waller should be a surprise.

Here is what I wrote back in June:

It’s been awhile since we’ve had a ’normal‘ rate cutting cycle so it’s worth a reminder about what happens and what always happens:
The market turns into a whiny teenager. It starts kicking-and-screaming
for rate cuts, with equities bleeding on anything that isn’t overtly
dovish.

If you don’t like that reference, then consider it like a toddler that wants a candy. They always want more and they want it right now. As the father of four young kids, there is no pleasing them.

This is exactly how markets behaved in 2008, in 2016 when rate hikes came too soon and how they behaved during the taper tantrum. The episode in 2019 was slightly less because Powell was seen as easing pre-emptively.

Fed funds target rate history:

This article was written by Adam Button at www.forexlive.com.

WTI crude is still clinging to support but the picture is looking increasingly dire for brent. The global benchmark closed today at the lowest since December 2021.

There have been a series of daily lows right around these levels and there are intraday lows that are worse since 2021 but this is the lowest daily and weekly close. That’s not a good sign.

I’d argue that the physical picture isn’t this bad, as we’ve seen hefty draws in US supplies and draws in global inventories. I think the market is anticipating a global growth slowdown and selling based on that as well as the likelihood of global production oversupply in H1 2025.

I think it’s also worth zooming out to the monthly chart to highlight the narrow range over the past two years. That’s indicative of a managed market which is exactly what OPEC has been doing. At the same time, it’s a reminder that OPEC hasn’t been great at managing the market over the past 25 years.

It’s also a reminder that brent is where it was in 2006. However when you adjust for inflation, $71 in 2006 is $109.50 today.

Even going back to just December 2021, the total inflation has been 20.25%, which makes $71 equal to $85.

That highlights just how much the price of a barrel has fallen in real terms, something that’s largely due to the US shale revolution but also underscores that it will be tough to make money in conventional oil from here against a backdrop of 3-6% annual global decline rates.

Further, adjusting the July 2008 all-time high of $147.50 to current dollars would yield $210.92 — an unfathomable sum.

The trouble for oil bulls right now is that any further selling opens up an ugly technical picture that could pave the way back to $60 and some uncomfortable decisions for producers.

This article was written by Adam Button at www.forexlive.com.

There aren’t many charts more technical than bitcoin and with today’s 4.5% decline, it’s sending all the wrong signals.

It’s only been below these levels for a few hours over the past six months and the last time it was here it was flushed down to $50,000 in something of a flash crash.

At the same time, the series of lower highs from $72K down to 65K over the past six months sends the wrong signal.

Moreover, there is a strong correlation between bitcoin and tech stocks, particularly semiconductors. That space is suddenly struggling as the market cools on its enthusiasm for AI. Broadcom reported results yesterday and is down nearly 10% today while Nvidia is down 4.5%.

This article was written by Adam Button at www.forexlive.com.