Global Markets Rally Ahead of Key US Jobs Data as Fed Rate Cut Bets Strengthen.
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Global markets ended the week on a strong note, buoyed by mounting expectations that the Federal Reserve could soon lower interest rates following a series of disappointing US labour market indicators. Wall Street reached fresh record highs, Treasury yields slid to multi-month lows, and Asian equities continued to track higher on Friday as investors awaited the official August Nonfarm Payrolls report, due later in the day.
US Labour Market Signals Weakness
A run of employment data this week highlighted signs of cooling in the US labour market.
* ADP payrolls showed private-sector job creation slowed to just 54,000 in August, far below expectations.
* Initial jobless claims rose by 8,000 to 237,000, the highest since June.
* The Challenger, Grey & Christmas report indicated that announced layoffs jumped to 85,979 in August, up 39% from July and the largest monthly total since 2020.
* The employment component of the ISM services survey remained in contraction territory, pointing to a softer demand for labour in key service industries.
While these reports signalled fragility, they also offered relief for bond investors. Second-quarter productivity strengthened, and unit labour costs rose modestly, reinforcing expectations that inflationary pressures may be contained. That combination fueled demand for Treasuries, sending yields down sharply. The 10-year Treasury yield dropped to 4.16% from 4.22%, its lowest in months.
Wall Street Climbs on Easing Yields
US equities rallied as falling yields reduced pressure on valuations. On Thursday:
* The S&P 500 climbed 0.8%, hitting a fresh all-time high.
* The Dow Jones Industrial Average added 350 points (0.8%).
* The Nasdaq Composite advanced 1%, supported by gains in growth stocks.
Investors increasingly view labour market softness as a catalyst for the Fed to cut rates. A 25-basis-point cut at the September 17 FOMC meeting is now nearly fully priced in by futures markets. Analysts argue that unless job growth or wages surprise significantly to the upside in Friday’s official NFP report, the Fed is set to ease policy for the first time this year.
Asia Follows Wall Street Higher
Asian equities joined the global rally on Friday. In Japan, the Nikkei 225 gained 0.9% to 42,945.16, supported by strong domestic data. Labour cash earnings rose 4.1% y/y in July, accelerating from 3.1% in June, while household spending climbed 1.4% y/y, marking a third consecutive month of growth.
Japan also welcomed positive trade developments. US President Donald Trump signed an executive order on Thursday implementing a trade agreement with Japan that had been finalised in July, reducing tariffs on auto imports from 25% to 15%. Prime Minister Shigeru Ishiba praised the move as a step toward easing uncertainty for critical industries, particularly automobiles. The yen edged up 0.2% to 148.36 per dollar.
In China, the Hang Seng Index rose 0.5% to 25,194.85, while the Shanghai Composite gained 0.4% to 3,778.95. Still, concerns remain that export growth slowed in August due to fading effects from Beijing’s earlier tariff truce with Washington and a high base of comparison from 2023.
European Data: Weak German Orders, Stronger UK Sales
European data painted a mixed picture. German factory orders slumped 2.9% m/m in July, a much weaker reading than expected, though June’s figure was revised slightly higher. Excluding large-ticket items, orders rose 0.7% m/m, but the overall trend underlined vulnerability in Europe’s largest economy. Export orders dropped 3.1%, while domestic demand fell 2.5%, reflecting the lingering impact of US tariffs and global trade uncertainty. A bright spot was the auto sector, where orders jumped 6.5%.
In the UK, retail sales outperformed expectations, climbing 0.8% m/m in July. However, June’s growth was revised down to 0.3% from 0.9%. On an annual basis, sales rose 1.1% y/y, offering some relief for a consumer sector that has struggled under high inflation and tighter monetary policy.
Crypto and Commodities Stay Cautious
Cryptocurrencies traded sideways ahead of the jobs report. Bitcoin hovered near $111,100, little changed on a 24-hour basis. Analysts said Bitcoin continues to move in tandem with equities, with macroeconomic data shaping investor expectations for liquidity conditions.
Goldman Sachs forecasts August NFP will show an increase of 60,000 jobs, below consensus estimates of 75,000, with unemployment ticking up to 4.3%, its highest since 2021. Such a reading would reinforce the case for a Fed cut and potentially support risk assets, including Bitcoin.
Shawn Young, chief analyst at MEXC Research, told Decrypt that markets have “largely priced in” weak labour data, but a “Goldilocks” report with moderate job gains, stable unemployment, and contained wage growth could fuel risk-on sentiment across equities and crypto. By contrast, a sharp downside miss might spark initial risk-off moves before markets pivot back to rate-cut optimism, while a strong upside surprise would push yields and the dollar higher, hurting risk assets.
Outlook: Fed Faces Delicate Balancing Act
The Fed is under pressure to balance its dual mandate of maximum employment and price stability. With core inflation still running at 3.1%, the central bank must weigh the risks of cutting rates too quickly against the need to stabilise a weakening job market.
Friday’s official Nonfarm Payrolls report from the US Labour Department will be pivotal in shaping the Fed’s policy trajectory. Markets are bracing for volatility, with traders watching whether the data confirms the narrative of a gradual cooling in the labor market—or delivers an unexpected twist that shifts expectations for the pace and depth of Fed easing.
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Please note that times displayed based on local time zone and are from time of writing this report.
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Andria Pichidi
HFMarkets
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