September jobs report due amid falling rate cut hopes

A somewhat downbeat start to the week in Europe, with markets losing traction once again. This comes off the back of an Asian session that saw a remarkably stable Nikkei 225 despite a -0.4% decline in Japanese GDP, and further strains on their relationship with China. Coming off the back of the recent threat of military involvement in the event of a Chinese invasion of Taiwan, the strategic pass-by from the Chinese coastguard and drones helped ramp up concerns of further tension between the countries. Crucially, the recent instructions from Chinese authorities that tourists and students should avoid Japan does highlight the potential demand destruction that could lead to further weakness in the fourth quarter. However, it was a mix of Trump’s tariffs and weak private consumption that hurt Japanese growth in the third quarter, with the -1.2% decline in exports helping to drive much of the -0.4% contraction.

Coming hot off the heels of yet another volatile week, traders are left wondering whether we are set for a similarly unpredictable period ahead. Once again Friday’s session saw a welcome rebound from key support for US equities, with the Nasdaq reversing early losses to close in the green. Notably, the announcement that Trump was removing tariff on over 200 items in a bid to drive down inflation is a sign that he will be flexible in a bid to keep a lid on inflation. This is likely to be both a nod to the political risk ahead of the 2026 midterms, and recent FOMC caution in the face of inflation concerns. Once again, the hesitation evident at the Fed has been presented by the latest comments from member Logan (“labour market doesn’t need further insurance cuts”), and Schmid (“lowering rates further could stoke inflation without helping the labour market”). With the CME now pricing a December cut at just 44%, there has been a notable shift in expectations which has helped dampen sentiment for precious metals and crypto.

This week finally sees the release of key US data, although Thursday’s September jobs report looks to be one of the only missing pieces that will emerge from this blackout. Early estimates put the payrolls figure around 50k, rising from the August reading of 22k. From a market perspective, there is likely to be a “bad news is good news” reaction, as traders hope to see the Fed shift onto a more proactive mindset once again. With appearances from Fed members Williams, Jefferson, and Waller up ahead, this week is likely to have a notable focus on whether the bank will continue to take a back seat amid economic and market concerns. However, the main event of the week will undoubtedly come in the form of the Nvidia earnings release, with the recent tech-led volatility highlighting how quickly sentiment can sour once valuation concerns start to see any level of justification. We have grown accustomed to earnings outperformance from Nvidia, but markets will need to see a perfect scorecard if we are to see valuation concerns cast aside once again.