US Market Wrap: Hot NFP raises Fed rate hike bets ahead of CPI/PPI next week

SNAPSHOT: Equities mixed, Treasuries flatten, Crude up, Dollar up, Gold down REAR VIEW: NFP tops expectations, reigniting Fed Sept hike bets; Trump said may hit Pickaxe Mountain very soon; Canadian economy loses jobs in August; Softer than expected BoE DMP 1yr inflation forecast; LULU sinks on dismal earnings. COMING UP: Desk Schedule: Desk will be open as usual on Sunday, 6th September until 18:00BST/13:00EDT on Monday, 7th September, due to the US market closure. Thereafter, the desk will resume normal service from 22:00BST/17:00EDT. Holiday: US Labor Day. Data: German Industrial Production (Jul), Swedish CPI (Aug), EZ GDP (Q2), EZ Employment Change (Q2). WEEK IN FOCUS: Click here for the full report. WEEKLY US EARNINGS ESTIMATES: ORCL earnings the highlight. Click here for the full report. MARKET WRAP US indices closed the final trading session of the week mixed, as the tech-heavy Nasdaq 100 outperformed and saw gains, while the S&P finished in the red. The main event on Friday was the US jobs report, which was strong and saw a hawkish reaction across markets as it increased the likelihood of a Fed rate hike at the September confab. For that, the clear catalysts come next week via the US inflation reports, which will likely dictate what the central bank does; if the inflation numbers are hotter-than-expected, it is widely expected to make a Fed hike more likely. Following the dataset, and as mentioned, it was a broad-based hawkish reaction as Treasuries and spot gold saw pressure, while the Dollar gained. Thereafter, the Dollar pared some of its strength, and the Yen ended up being the G10 underperformer in the wake of choppy price action post-US jobs report. The crude complex eked out gains in a lack of US/Iran newsflow heading into the weekend. Trump said they may hit Pickaxe Mountain very soon. Lastly, sectors were predominantly in the red with Consumer Discretionary and Health lagging, with just Industrials and Tech sitting in positive territory. NFP NFP: The US jobs report was strong, and heightened traders' bets for a September Fed rate hike, with an implied probability of a 25bps hike now priced at 65% probability (vs 50% pre-release). The headline was strong, and saw 162k jobs added to the US economy in August, above the expected 55k and the prior revised-up 21k. The unemployment rate was unchanged at 4.1%, as expected, while the participation rate lifted to 61.6% from 61.4%; the U6 unemployment rate declined to 7.7% from 7.9%. For the headline, private payrolls contributed 127k jobs (exp. 45k, prev. 71k), manufacturing 16k (exp. 5k, prev. 14k), and Government 35k (prev. -50k). Wages ticked higher by 0.3% M/M (from 0.2% prior), while the annual rate slightly cooled to 3.1% from 3.2%, but still above the consensus of 3.0%. All in all, money markets have moved more hawkish as it continues to show the labour market is in good health and steady. As such, and although it was already the case, it places paramount importance on next week's inflation reports as they will highly likely determine what the Federal Reserve does at its 16th September confab; if inflation is hotter than the Wall St. consensus, a hike will get even more baked-in. Some of the recent comments from Fed members include the influential Waller supporting a hold at the September FOMC meeting if August inflation data shows continued progress. In most recent remarks from Fed Chair Warsh, he said he has work to do unless underlying inflation is moving clearly towards the 2% objective at sufficient speed. FIXED INCOME T-NOTE FUTURES (Z6) SETTLED 6 TICKS LOWER AT 107-15 Short-end yields rally as hot NFP lifts Fed hike bets in September. At settlement, 2-year +4.1bps at 4.381%, 3-year +3.8bps at 4.453%, 7-year +2.2bps at 4.659%, 10-year +1.2bps at 4.784%, 20-year -0.2bps at 5.250%, 30-year -0.6bps at 5.246%. THE DAY: Treasuries flattened as a better-than-expected NFP report sparked hawkish repricing of FOMC expectations in September. Employment grew 162k, beating the expected 55k, accompanied by +55k revisions over the last two months. As such, the unemployment rate stood firm at 4.1% as expected despite an uptick in the participation rate to 61.6% from 61.4%. Subsequently, US 2yr yields hit a new YTD high, albeit the extent of the move was short-lived, with yields on the long end little changed from pre-release (2- & 3yr yields held onto ~half of the gains). Whilst the report raises the likelihood of a hike in Sept/2026, the focus was and still remains on the inflation mandate. Thus, today's NFP report confirms to the Fed that the labour market landscape is still stable, but as Governor Waller pointed towards in his speech this week, the bar could still possibly be high for a hot CPI/PPI report next week to convince some members to shift towards tightening. Now, money markets are pricing in about a 58% chance of a 25bps hike at the September meeting vs 50% beforehand. Attention now turns to US CPI and PPI next week. STIRS / OPERATIONS Fed Hike Pricing via CME FedWatch: Sept 14.6bps (prev. 12.6bps), Dec 34.5bps (prev. 32.5bps). EFFR at 3.63% (prev. 3.63%), volumes at USD 109bln (prev. USD 114bln) on September 3rd SOFR at 3.66% (prev. 3.65%), volumes at USD 2.949tln (prev. USD 2.882tln) on September 3rd NY Fed RRP op demand at 0.675bln (prev. 0.702bln) across 2 counterparties (prev. 4) on September 4th CRUDE WTI (V6) SETTLED USD 0.18 HIGHER AT USD 91.48/BBL; BRENT (X6) SETLED USD 0.76 HIGHER AT USD 96.28/BBL The crude complex traded higher, amid a lack of de-escalatory or escalatory remarks from the US or Iran. Into the long weekend in the US, due to the Labor Day holiday, participants may have wanted to take risk off the table. Nonetheless, benchmarks were able to pare downside amid unconfirmed social media reports of missile launches from Iran, which was followed by reports of explosions being heard in Jordan. As mentioned, and while US/Iran newsflow was light, Axios reported that the Trump admin is drafting a post-war Middle East plan; reports noted that while the plan is still in the early stages of drafting, it's intended to guide the US approach in the Middle East after the Iran war ends and in the final two years of Trump's term. Elsewhere, the weekly Baker Hughes rig count saw oil up 2 at 449, natgas down 2 at 130, leaving the total unchanged at 588. For the record, WTI traded between USD 88.72-92.17/bbl and Brent USD 93.15-96.24/bbl. EQUITIES CLOSES: SPX -0.38% at 7,719, NDX +0.21% at 29,544, DJI -0.51% at 53,419, RUT +0.25% at 2,976. SECTORS: Consumer Discretionary -1.26%, Health -1.06%, Energy -0.99%, Consumer Staples -0.96%, Communications -0.94%, Real Estate -0.85%, Financials -0.76%, Materials -0.42%, Utilities flat, Technology +0.23%, Industrials +0.41%. EUROPEAN CLOSES: Euro Stoxx 50 +0.19% at 6,394, Dax 40 +0.17% at 26,048, FTSE 100 0.00% at 10,831, CAC 40 -0.09% at 8,279, FTSE MIB -0.28% at 52,100, IBEX 35 +0.25% at 20,051, PSI -0.14% at 9,389, SMI +0.11% at 14,411, AEX +0.80% at 1,114 STOCK SPECIFICS: Trade Desk (TTD): Announced organisational realignment plan, including ~15% workforce reduction in Q3. Zscaler (ZS): Earnings beat fails to impress. Guidewire Software (GWRE): Earnings beat offset by modest FY27 ARR outlook. Adobe (ADBE): Announced internal CEO transition. Lululemon (LULU): Rev. & guidance missed; SSS declined more than expected. Fair Isaac (FICO), Equifax (EFX), TransUnion (TRU): FHFA orders Fannie and Freddie to approve all lenders for VantageScore, while considering a credit-score bi-merge. FHFA Director Pulte says we have also expanded title insurance pilots to make sure people save on title insurance; First American (FAF), Fidelity National (FNF) were hit on the news. FX USD was slightly firmer, tracking higher US 2yr yields in response to a stronger-than-expected NFP report. Headline grew 162k above the 55k expected, with +55k revisions to the two prior months and the unemployment rate holding steady at 4.1%. The report has slightly boosted rate hike expectations for the FOMC Sept meeting; however, an above-expected CPI/PPI report may still be required for Fed members to tighten; otherwise, a Waller approach may be taken: "Can give disinflation a chance, we can wait one meeting". Outside of US data & Fed policy, newsflow was generally light. US President Trump, speaking to reporters, said they may hit Pickaxe Mountain very soon, a site that has been linked to Iran's nuclear site, yet has not been subject to strikes. DXY traded higher to 99.14, yet still down -0.5% on the week, with all eyes on next week's CPI and PPI reports. CAD was weaker as a hot NFP and poor Canadian jobs report weighed. In Canada, employment growth unexpectedly went negative, -41.7k vs exp. +15k. The unemployment rate remained at 6.4% as expected, with the participation rate declining to 65.0% from 65.1%. The report saw Canadian 2-year yields move lower as markets walked back some of the hike expectations through 2026 and 2027. BoC policymakers earlier this week noted increased upside risks to the inflation outlook amid higher gasoline prices and the potential need for policy adjustments if broadening occurs; however, today's jobs report highlights the unstable labour environment, which will likely keep policymakers in a patient wait-and-see approach. USD/CAD hit highs of 1.3872, before trimming to 1.3839.