Septembers Labor Report out this Week

STOCK INDEX FUTURES

The indexes are little changed to start the week as investors ready for a slate of major corporate earnings on the heels of the end of the government shutdown. Investors will keep an eye out for any announcements of a revised schedule of economic data releases from US government agencies after the Bureau of Labor Statistics announced that September’s labor report will be released on Thursday. Attention in the equities will also center around earnings reports from Nvidia, Walmart, Target, and Home Depot for a health check on the AI rally and insights into consumer strength. Nvidia’s earnings event will be highly scrutinized and could serve as a test for faith in the AI rally after recent doubts about high valuations have weighed on the sector. In premarket trading, Alphabet’s shares rose over 5% after Berkshire Hathaway disclosed a large stake in the tech giant.

Other key releases this week include the NY Empire State Manufacturing Index on Monday, ADP weekly employment change data and the NAHB Housing Market Index on Tuesday, the FOMC’s meeting minutes for October on Wednesday, Existing Home Sales on Thursday, and Flash S&P PMIs and the University of Michigan Consumer Sentiment and Inflation Expectations to round out the week on Friday.

On Friday, President Trump lowered tariffs on beef, coffee, and dozens of agricultural and food goods, marking a significant rollback of his reciprocal levies in an effort to address concerns about the cost of living. Trump issued an executive order modifying the reciprocal levies he imposed on virtually every trading partner in August, exempting more than a hundred common food items including fruits, nuts and spices.

INTEREST RATE MARKET FUTURES

Yields edged lower, with the 10-year yield inching below 4.15% as skepticism over a December rate cut grows ahead of Thursday’s release of September’s labor report. Fed Funds futures are showing that investors are almost evenly divided on the prospect of a rate cut, as several Fed officials have called for rates to remain unchanged next month, while other officials continue to stress labor market weakness. September’s report will likely stir volatility for markets, although it will not be entirely reflective of the state of the labor market. Accurate and reflective figures likely will not come until early January, when December’s report is due, and those figures could also be distorted due to the shutdown as well.

Markets will continue to look to private figures for clues to the state of the US economy in the meantime, with S&P PMI data out later in the week likely to gain attention, especially in regard to its employment and prices indexes, after ISM’s PMI data had suggested that labor market conditions remain weak and price pressures, specifically in the services sector, remain elevated. There is little evidence to prove that labor market conditions have improved ahead of December’s meeting, which could sway doves at the FOMC and support the case for another hawkish rate cut. Uncertainty as to whether the labor market is stable remains, given a reduction in the supply of and demand for workers, while inflation remains above the Fed’s 2% target. The Fed does expect inflationary effects from tariffs to have more of a pass-through effect on prices, while private data and recent news of layoffs have sparked worries over the labor market.

The spread between the two- and 10-year yields lowered to 53.10 bps, while the 2-year yield, which reflects interest rate expectations, fell to 3.608%.

CURRENCY FUTURES

US DOLLAR: The USD index edged higher as markets await September’s nonfarm payrolls report on Thursday. Expectations of a Fed rate cut next month have been pared back substantially, which has proven supportive of the dollar. Dollar direction is likely to be dependent on upcoming economic data releases, given that comments from policymakers have largely been priced in. Fed Funds futures are pricing a 44.6% chance of a rate cut come December, down from being nearly fully priced in just over a month ago. Despite September’s report finally being released, the data will not be the most relevant figures for the US economy, and it will take time for data to begin to accurately reflect the state of the economy again.

EURO: The euro fell against the dollar as markets await key US data later amid a quiet week of data for the eurozone. Attention will center around Flash PMI data for France, Germany, and the Eurozone on Friday. Eurozone manufacturing is expected to show a slight expansion, with contractions in Germany and France moving closer to stabilization. Services activity is projected to remain strong. Also grabbing attention will be German PPI (Oct) and eurozone flash consumer confidence (Nov) on Thursday. The European Commission on Monday raised its economic forecast for 2025 to 1.3%, up from 0.9% in its spring outlook, citing a surge in exports to the US as companies stocked up ahead of tariffs. Growth is then expected to slow to 1.2% in 2026, down from 1.4%, before rising to 1.4% in 2027.

BRITISH POUND: The pound moved higher ahead of key inflation data for October, due early Wednesday, which will provide further policy clues on the Bank of England’s interest rate decision in December. The BoE expects consumer inflation to have already peaked and sees inflation coming down to 3.6% from 3.8%. A softer inflation reading will likely open the door for a December rate cut after a recent sluggish GDP reading and rising unemployment in the country. UK money markets are pricing roughly a 75% chance of a December rate cut from the BoE. Elsewhere on the data front, retail sales data due on Friday will serve as a check-in on consumer strength, while Flash PMI data for November will also provide further clues on the economy. Manufacturing is expected to show a further contraction in activity, while growth in the services sector is likely to moderate. Attention will also center around any commentary regarding the UK budget scheduled for release on November 26, after the Financial Times reported that the Labour government dropped plans to raise income taxes, a move that led to a rise in gilt yields and a drop in the sterling.

JAPANESE YEN: The yen fell lower, continuing to hover near nine-month lows despite a positive GDP reading out of the country late Sunday. GDP data surprised to the upside, with third-quarter GDP clocking in at -0.4%, above expectations of a -0.6% drop, while second-quarter GDP growth was revised higher to a 0.6% growth. A drop in private consumption (0.1% vs 0.4% in Q2) and net trade (-0.2 ppts) led the downside in the contractionary reading. Exports (-1.2% vs 2.3%) fell more than imports (-0.1% vs 1.3%), while rising food prices, especially rice, weighed on consumption. Meanwhile, government spending and business investment both logged their strongest growth in over a year, boosted by front-loaded public works and corporate efforts to upgrade production capacity. The drop in private consumption likely worried some investors, as it remains central to the Bank of Japan’s conditions for raising interest rates. However, despite the drop in growth, consumer consumption remains resilient, and sustained growth could help inflation get back to its 2% target, opening the door for a rate hike. The data also comes as Prime Minister Sanae Takaichi’s administration is considering compiling a stimulus package sized around 17 trillion yen ($110 billion) to ease rising living-cost pressures. On the prices front, Friday (late Thursday in the US) will bring inflation data, which is expected to show consumer prices excluding fresh food to have risen by 2.9% in October. Signs of continued persistent inflation could reinforce expectations that the BoJ may soon resume tightening, especially after recent indications that the central bank may be preparing to shift its policy stance.

AUSTRALIAN DOLLAR: The Aussie moved lower as a stronger dollar weighed on the currency. Meeting minutes from the Reserve Bank of Australia will take the spotlight this week as markets increasingly expect the RBA to end its easing cycle in an effort to rein in inflation, which has recently heated up. Strong economic data and a falling unemployment rate, as well as a rise in consumer confidence and housing loans, give the RBA little urgency to ease policy and reinforce their outlook of rising inflation. Also in focus is quarterly wages data due on Wednesday. Forecasts are expecting a 0.8% gain, which would leave the annual pace steady at 3.8%, which would likely reinforce the view of a strong labor market after a solid jobs report just last week. On Thursday, RBA’s chief economist, Sarah Hunter, will speak and is expected to offer hawkish remarks.

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