🚨 Non-Farm Payrolls to Shake Markets?

Good Morning!

Markets are in limbo as the U.S. and Canada holidays thin trading. The focus is on U.S. payrolls—anything below the +165,000 mark could slash hopes of a 50 basis-point rate hike. China’s mixed data, with a PMI above forecasts but a dip in new export orders, kept markets on edge. Japan saw a slight improvement, while Europe waits for economic signals amid political jitters. Meanwhile, the Bank of Canada might lower rates, and euro traders eye fallout from Germany’s far-right gains. Stay tuned for more data-driven twists this week.

In today’s email:

• FedWatch: All eyes on jobs number this Friday

• Bitcoin: Bitcoin back below $58k, don’t expect much till Friday

• Bonds: Better than stocks going forward?

• Gold: Cant it beat the September ‘Curse’?

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THE BIG IDEA

As global central banks pivot to rate cuts, investors weigh the risks and opportunities for equities in a changing economic landscape

The era of peak interest rates is winding down, with the Federal Reserve expected to join other global central banks in cutting rates this September. The shift signals a more supportive environment for equities, but also a mixed bag of risks. Analysts predict three 25-basis-point rate cuts from the Fed by year-end, aligning with moves by the European Central Bank and the Bank of England. Despite a weakening global backdrop, U.S. recession fears are cooling, and markets are betting on lower rates to sustain growth.

Yet, the picture isn’t all rosy. Stocks are rallying, but volatility looms. The VIX is down from its August spike, but expect choppy markets through the rest of the year, driven by geopolitics, corporate earnings, and sector rotations—especially in AI and tech.

Central bank rate cuts could also come hand-in-hand with weaker economic data, which might curb investor optimism

Currency markets will keep their focus on inflation and rate expectations, particularly as the Fed’s cuts could be interrupted by factors like U.S. elections or unforeseen inflation spikes.

While a lower-rate environment appears to be on the horizon, it's not without its potential pitfalls. Investors need to be ready to adapt to shifting conditions, with equities still looking like the asset class of choice through 2025.

All eyes will be on upcoming economic data, especially the U.S. jobs report on September 6, to see if the current trajectory holds.

MARKETS AT A GLANCE

TOP NEWS

Global markets tread carefully as U.S. jobs report looms, influencing Fed rate cut size

Asian shares were muted with Japan’s Nikkei flat and China’s stocks dipping 1.2%. The dollar stayed firm after rising yields, while political uncertainty in Germany weighed on the euro. Eyes are on Friday’s U.S. payrolls data — crucial for deciding the extent of the Fed’s next rate cut. Investors remain cautious amid mixed economic signals.

As interest rates remain high, bonds now offer a more appealing value proposition compared to stocks

We’re entering a new market phase where bonds shine brighter than equities. With central banks, including the Fed, set to lower rates but not to pre-Covid lows, bonds offer solid returns with less volatility. Vanguard’s data shows that, in high-rate regimes, bonds provide similar returns to stocks but with much lower risk. As rates stabilize around 3-3.5%, it’s time to rethink your portfolio mix—adding more bonds could boost returns while diversifying risks. Historically, bonds have proven their worth in such scenarios, making them a smart choice moving forward.

OPEC+ signals plans to increase oil supply as demand concerns linger, while commodities markets show mixed movements

Oil prices dipped as OPEC+ leans towards unwinding supply cuts starting in October, despite ongoing Libyan supply disruptions and weak Chinese PMI data raising demand concerns. European gas prices climbed due to reduced Norwegian flows from maintenance. In metals, China's copper stocks hit a multi-month low, while Chilean production showed a slight year-over-year increase. Meanwhile, the sugar market remains tight with the ISO forecasting a larger deficit in 2024/25, amid India lifting restrictions on ethanol production from cane juice.

CRYPTO

Bitcoin slips below $58,000 as crypto markets face liquidations and bearish sentiment

Bitcoin dropped to $57,500, down 1.5% in the last day and nearly 10% over the past week, with Ether also falling to $2,440. The weekend saw $162 million in liquidations, largely from long positions. Bitcoin ETFs in the U.S. faced $276 million in net outflows, and funding rates turned negative, signaling a bearish market outlook. Meanwhile, Bitcoin miners saw August revenue hit a yearly low.

Cardano's "Chang" upgrade activates, making ADA a governance token and ushering in a new era of decentralized control

Cardano’s highly anticipated "Chang" hard fork is live, transforming ADA into a governance token that allows holders to vote on development proposals and elect governance representatives. The upgrade introduces three new governance bodies, transferring control from Cardano's founding entities to the community. This marks the start of the Voltaire era, a major step towards full decentralization and differentiates Cardano as a leading layer-1 blockchain with on-chain governance.

Central banks are buying gold at record levels, but Bitcoin still leads in year-to-date gains

Central banks purchased a record 483 tonnes of gold in the first half of 2024, marking a 5% increase from last year. Despite gold's surge to an all-time high of $2,525 per ounce, Bitcoin has outperformed, up 37% year-to-date compared to gold's 23% rise. As BRICS nations eye a gold-backed stablecoin, demand for gold may rise, but Bitcoin continues to capture higher returns.

Coinbase Breaks New Ground with AI-to-AI Crypto Transactions

Coinbase has made history by facilitating its first AI-to-AI crypto transaction. On August 30, CEO Brian Armstrong revealed that AI bots used crypto tokens to buy AI tokens from each other. This groundbreaking event allows bots to conduct transactions globally and instantly, despite current limitations in AI capabilities. With companies like Skyfire and Biconomy also exploring AI payment solutions, this move could revolutionize how AI interacts with financial systems.

GOLD

Gold Faces September Challenge: Can It Beat the ‘Curse’?

Gold’s impressive rally faces a potential hiccup as September historically drags down prices. Since 2017, bullion has dropped every September, with an average decline of 3.2%. This trend is attributed to traders selling off gold after summer hedging. Despite a stellar year so far, bolstered by central bank purchases and potential Fed rate cuts, the metal might struggle with September’s seasonal headwinds and a strong dollar.

DAILY ECONOMIC CALENDAR (ET)

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