Labor day provides slow start, but jobs focus should mean volatility lies ahead

A positive open in Europe today comes after a volatile Asian session that brought mixed fortunes for Nikkei 225 (-1.24%) and Hang Seng (+2.15%). With the summer officially behind us, there are significant concerns as we enter a month that is the worst performing for the S&P 500. Nonetheless, the gradual improvements seen in the Chinese PMI report has brought the highest manufacturing PMI reading in five-months, bolstering support for Chinese stocks and oil prices. However, the main driver of strength for the Hang Seng came from Chinese tech giant Alibaba, which gained a whopping 18% after reporting a sharp surge in AI-related revenues. Coming hot off the heels of Nvidia’s earnings report that saw a collapse in H20 sales, the latest Alibaba earnings will have many wondering whether the value trade in the AI space lies in Chinese stocks after years of rampant Mag7 gains.

Gold and silver have enjoyed a stellar start to the week, with silver in particular surging into a 14-year high in early trade. In an environment of concerns around the ever-increasing debt burden and ongoing trade uncertainty, traders have understandably looked further afield in a bid to seek assets that benefit from concerns around fiat devaluation and potential stock-market volatility. Notably, with the wider growth outlook improving, silver has started to come into its own given the benefit of also reflecting improved industrial demand. With markets forecasting weaker jobs data across the course of the week, additional concerns over the direction of the US economy could yet provide the kind of boost that may drive gold into fresh record highs above $3500.

Last week’s Nvidia earnings does mean that US Q2 earnings season is largely behind us, with 98% of the S&P 500 having reported. As such, traders will turn their attention to the state of the US economy this week. With the August jobs report having seen a dramatic payrolls miss and huge revisions to the May/June figures, this Friday gives us yet another insight into whether the pace of job creation has dropped off a cliff under Trump. Notably, the President’s efforts to bring down immigration will have had an impact on the jobs data, and thus the fact that US unemployment remains at a historically low 4.2% means that perhaps any short-term payroll weakness should be taken with a pinch of salt. Nonetheless, the Fed appears ready to act if we see the jobs market roll over, and last week’s 0.3% core PCE inflation reading means that further weakness in the jobs market will likely drive expectations of additional rate cuts from the Fed. With the US and Canada enjoying the labor day celebrations, this week starts slow and builds towards Friday’s blockbuster jobs report.