Canadian dollar eyes Canadian, US jobs data

Forex

Economic

Summary:

The Canadian dollar dipped ahead of Canada and U.S. jobs data. Markets expect modest Canadian job gains and weak U.S. payrolls, reinforcing Fed cut bets. USD/CAD trades near 1.3793, testing key support.

The Canadian dollar has edged lower on Friday. In the European session, USD/CAD is trading at 1.3793, down 0.19% on the day. We could see stronger movement from the Canadian dollar later in the day, as Canada and the US release the August employment reports.

Canada's employment expected to rebound

Canada's labor market took a beating in July, with the loss of 40.8 thousand jobs, including 10 thousand job losses in manufacturing. The markets expect a rebound in August, with an estimate of 7.5 thousand new jobs. The unemployment rate is expected to tick up to 7.0% from 6.9%.

The weak July reading was directly attributable to the US tariffs, which have hurt the Canadian economy. The US has slapped 35% tariffs on many Canadian products and Canada ships some 75% of its export to its southern neighbor. The two sides are yet to reach a trade agreement but Canada can ill afford a protracted trade war with the US.

Markets brace for weak US NFP

All eyes are on today's US employment report. With inflation largely under control, nonfarm payrolls are closely monitored and could move the US dollar.

The markets are expecting virtually no change in nonfarm payrolls, with an estimate of 73 thousand for August after a gain of 75 thousand in July. The labor market is clearly cooling as employers remain cautious in an uncertain economic environment. The unemployment rate is expected to edge up to 4.3% from 4.2%, which would be the highest level since December 2021.

The Federal Reserve is virtually certain to lower rates at the September 17 meeting, but a weak nonfarm payrolls report would likely lead to calls for the Fed to respond with a jumbo half-point cut.

USD/CAD Technical

USDCAD has pushed below support at 1.3798 and is testing 1.3798. Below, there is support at 1.3784

There is resistance at 1.3819 and 1.3826

Canadian dollar eyes Canadian, US jobs data_1

USDCAD 4-Hour Chart, September 5, 2025

Source: marketpulse

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Adam

Economic

A recent post from Daniel Lacalle, “How Keynesians Got The US Economy Wrong Again,” exposed the widening gap between John Maynard Keynes’ economic theory and reality. Despite the confident forecasts of leading Keynesian economists, the U.S. economy in 2025 continues to defy expectations. The Federal Reserve’s tightening cycle failed to trigger the widely predicted “hard landing,” and growth has proven more resilient. Simultaneously, inflation remains somewhat sticky, but still declining, and the economy refuses to follow the neat, linear pathways that textbook models suggest.

This latest embarrassment for Keynes’ orthodoxy is part of a much larger story. The failures aren’t isolated miscalculations but the predictable result of a flawed framework that policymakers have clung to for decades. Keynesian economics didn’t just “get it wrong” in 2025, but has repeatedly failed to deliver on its promises for over forty years. And the consequences are becoming impossible to ignore.

At its core, Keynesian economics is deceptively simple. When demand for the private sector falls, the government should borrow and spend to fill the gap. The idea is that temporary fiscal stimulus injections will smooth business cycles, reduce unemployment, and quickly return the economy to full capacity.

But the key word here is temporary. John Maynard Keynes was clear: governments should run deficits during downturns and surpluses during expansions. The debt incurred to rescue the economy should be repaid once conditions normalize.

However, in practice, this discipline never materialized. Politicians discovered that voters liked stimulus but hated austerity. Since the 1970s, deficits have become a permanent feature of U.S. fiscal policy, regardless of the business cycle. The results are sobering: the U.S. national debt now exceeds 120% of GDP, entitlement programs are structurally underfunded, and each crisis requires larger interventions with diminishing economic benefits.

Why Keynes’ Economic Theories Failed in Reality_1

The COVID-19 pandemic was the ultimate Keynes experiment. Between 2020 and 2022, the federal government injected over $5 trillion in fiscal stimulus into the economy, complemented by the Federal Reserve slashing interest rates to zero and expanding its balance sheet by $120 billion each month. According to the Keynesian model, this unprecedented monetary and fiscal stimulus should have ushered in a durable economic boom.

The Failure of Artificial Growth

However, as we noted in “MMT Was Tried And Failed,” the massive flood of stimulus temporarily boosted economic growth by “pulling forward” future demand, but it also created several problems.

“The most obvious problem was the impact of dramatically increasing demand on a supply-stricken economy. With the economy “shut down” due to Government-mandated restrictions, the flood of stimulus payments led to a demand boost. Given the basic economics of supply versus demand, prices rose. As expected would be the case, the implementation led to a massive surge in inflation. (Given most Americans’ have fixed healthcare and housing payments for a contractual period, the third measure shows what cost-of-living is for most every month.)”

Crucially, inflation, excluding housing and healthcare, surged to nearly 12% during the pandemic-stimulus-infused spending spree. However, today, as the economy slows and the stimulus fades from the system, that inflation rate has declined to just 1.61%.

Why Keynes’ Economic Theories Failed in Reality_2

Secondly, the “economic boom” created by the demand-pull stimulus continues to disappear as the economy normalizes slowly back to roughly $3.50 in debt to make $1 of economic activity. Following the pandemic shutdown, the economy surged to unprecedented levels, nearing 17.5% nominal growth. On a shuttered economy, the byproduct of all that demand was an inflation surge to 40-year highs, peaking above 9% in 2022. Five years later, inflation continues to decline towards the Fed’s 2% target, but remains sticky as remnants of monetary and fiscal stimulus continue to flow through the system.

Why Keynes’ Economic Theories Failed in Reality_3

The Broken Transmission of Monetary Policy

A further failure of modern Keynesian policy is its overreliance on central banks. Through rate cuts and quantitative easing (QE), monetary stimulus has become the go-to solution for any economic slowdown. Yet the transmission mechanism between monetary policy and real economic activity has fundamentally broken. Artificial interventions and “MMT” failed to work in reality because the underlying transmission system failed.

“The promise of something for nothing will never lose its luster. So MMT should be viewed as a form of political propaganda rather than any real economic or public policy. And like all propaganda, we must fight it with appeals to reality. MMT, where deficits don’t matter, is an unreal place.”

Meanwhile, the velocity of money, the rate at which money changes hands in the economy, while recovering somewhat from the economic shutdown, continues to trend lower. In other words, the Fed can inject liquidity but fails to circulate productively. The velocity trend does not provide an encouraging outlook for GDP growth.

Why Keynes’ Economic Theories Failed in Reality_4

Given the weakening economic growth rates and subsequently declining inflation, a direct reflection of weakening consumer demand, banks have little incentive to expand lending at current rates, especially in an environment of tighter regulations and poor credit quality.

One key problem is that Keynesian models assume a linear cause-and-effect relationship between government spending and economic output. They focus almost entirely on aggregate demand, neglecting critical dynamics like debt saturation, supply chain fragilities, and the feedback loops of global capital markets.

In today’s highly financialized economy, government spending does not circulate efficiently. As noted, much of it gets trapped in financial markets, inflating asset prices rather than stimulating productive investment. Ultra-low interest rates, another hallmark of Keynesian policy, discourage savings and encourage debt-fueled speculation. This distorts capital allocation, causing malinvestment in unproductive assets like meme stocks, speculative real estate, and unprofitable tech ventures. Most benefits remain trapped in the top 10% of the economy, which owns roughly 88% of the inflation-adjusted financial assets.

Why Keynes’ Economic Theories Failed in Reality_5

In other words, the wealthy retain the monetary injections while inflation taxes them away from the poor.

Mr. Lacallie highlighted this mismatch between Keynes’ theories and economic realities. As he noted, many mainstream economists repeatedly forecasted a 2023-2024 recession that never arrived, underestimated inflation persistence, and misread the impact of fiscal tightening. These forecasting errors expose deeper flaws in how Keynesians model the modern economy.

Hayek’s Warnings Prove Prophetic

The Austrian school of economics, particularly Friedrich Hayek’s views, starkly contrasts with Keynesian thinking. Austrian economists believe that a sustained period of low interest rates and excessive credit creation creates a dangerous imbalance between saving and investment. In other words, low interest rates tend to stimulate borrowing from the banking system, which leads, as one would expect, to the expansion of credit. This expansion of credit, then, in turn, increases the supply of money.

Therefore, as one would ultimately expect, the credit-sourced boom becomes unsustainable as artificially stimulated borrowing seeks out diminishing investment opportunities. Finally, the credit-sourced boom results in widespread malinvestments. When the exponential credit creation is no longer be sustainable, a “credit contraction” occurs, ultimately shrinking the money supply. The markets eventually “clear,” which causes resources to be reallocated towards more efficient uses.

Why Keynes’ Economic Theories Failed in Reality_6

Modern policymakers refuse to allow this natural process. Each downturn results in more aggressive stimulus, which only delays the necessary corrections. The result has been a relentless build-up of economic imbalances. Inefficient businesses survive on cheap debt, zombie firms proliferate, and innovation suffers. Each economic expansion is weaker than the last, and each recovery depends on larger interventions to stay afloat.

Perhaps the greatest misconception perpetuated by Keynesian economists is that debt-financed stimulus is a free lunch. In reality, servicing the debt and rising debt service costs become a significant economic headwind. The Congressional Budget Office projects that U.S. interest payments will exceed national defense spending in the coming years and approach $1.5 trillion annually by 2030. Of course, that is assuming that rates stay where they are currently. The next crisis, which has become more common since the turn of the century, will significantly lower rates. As shown, a reduction in rates by 1% would dramatically impact future liabilities.

Why Keynes’ Economic Theories Failed in Reality_7

This is not just a fiscal issue—it’s a macroeconomic drag. Spending dollars on interest payments diverts them from infrastructure, education, or productive investment. Worse, rising debt levels crowd out private investment, distort capital markets, and reduce the flexibility to respond to future crises.

Conclusion: Keynes’ Economic Theory Has Failed

For the last 40 years, each Administration and the Federal Reserve have continued to operate under Keynes’s monetary and fiscal policies, believing the model worked. The reality, however, is that most of the economy’s aggregate growth is financed by deficit spending, credit expansion, and a reduction in savings.

This reduced productive investment and slowed the economy’s output. As the economy slowed and wages fell, the consumer took on more leverage, decreasing savings. The result of the increased leverage required more income to service the debt, rather than fuel increased consumption.

Why Keynes’ Economic Theories Failed in Reality_8

Secondly, most government spending programs redistribute income from workers to the unemployed. Keynes’ economists argue that this increases the welfare of many hurt by the recession. What their models ignore, however, is the reduced productivity that follows a shift of resources toward redistribution and away from productive investment.

All of these issues have weighed on the overall prosperity of the economy. What is most telling is the inability of current economists, who maintain our monetary and fiscal policies, to realize the problem of trying to “cure a debt problem with more debt.”

This is why Keynes’ economic policies have failed, from “cash for clunkers” to “Quantitative easing.” Each intervention either dragged future consumption forward or stimulated asset markets. Pulling future consumption forward leaves a “void” in the future that must be continually filled. However, creating an artificial wealth effect decreases savings, which could be used for productive investment.

It’s time we wake up and realize we are on the same path.

Source: investing

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Michelle

Economic

Forex

Canada’s economy lost 66k jobs (-0.3% m/m) in August, adding to 41k jobs lost in July. The job losses concentrated in part-time positions (-60k), while full-time employment was little changed.

The unemployment rate rose to a new cycle high of 7.1%. The increase would have been worse were it not for 31k fewer workers in the labour force.

Job losses were seen across several industries. The biggest losses were in professional, scientific and technical services (-26k; -1.3%), transportation and warehousing (-23k; -2.1%), and manufacturing (-19k; -1.0%). However, construction employment bounced back (+17k; +1.1%) from July’s decline (-22k; -1.3%).

Wage growth slowed to 3.2% in August, slightly lower than 3.3% in July.

Key Implications

July and August’s job losses have now more than reversed June’s outsized gain, and the Canadian economy has lost 39k jobs since January. The unemployment rate has risen half a percentage point over the same time period. It could be worse though, a slowdown in labour force growth is keeping the unemployment rate from rising too high, despite weak labour demand.

August’s report is consistent with the Bank of Canada’s characterization of “an excess supply of labour” in July’s Monetary Policy Report. However, it hasn’t yet prompted them to lower rates beyond the pre-emptive cuts made early in the year. Markets are now putting odds on the next cut coming in September. We have long expected two more cuts this year, with the inflation report on September 16th likely to help cement the timing of the next cut.

Source: ACTIONFOREX

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Samantha Luan

Economic

Forex

Political

How long does it take for conventional wisdom to make a 180 degree U-turn? In the case of anything Trump related, it's just under 6 months.It was in early April, just after Liberation Day's reciprocal tariffs were announced, that US bond markets suddenly cratered, sparking a collapse in hundreds of billions of basis trades, and triggered fears of a global economic shock. That's when tariffs were widely seen as bad and anyone who dared to say it's never that black or white - such as this website - were blasted as economic illiterates. Well, fast forward to today when quietly conventional wisdom has been turned on its head and the mere possibility of tariffs getting pulled is now seen as one of the biggest threats to the stability of the bond market!

That's right: if the Financial Times is to be believed - and it is, since it loathes Trump with a passion and would never say anything even remotely complementary if it could avoid it - Trump’s tariffs are now a key factor keeping Treasury investors on board (the same tariffs that were widely blamed for the relentless selling back in April). According to the paper, the tariff revenues - which so many of the establishment economists never even considered in April - are now seen as a crucial income stream that offsets the costs of the Big Beautiful Bill, and investors are now counting on hundreds of billions of dollars raised by the remaining tariffs to offset Trump’s tax cuts and keep a lid on US borrowing.

“The only way I can see for the US government to reduce its outstanding debt in the near term is to use the tariff revenue,” said Andy Brenner, head of international fixed income at NatAlliance Securities, citing also revenues from chipmakers’ China sales. “If all of the sudden the tariff revenue will not be there, that is a problem.”Not only that, but as we noted two weeks ago, both S&P and Fitch recently conceded that tariff revenues for the US federal government were one factor that prevented them from downgrading the sovereign.

The Congressional Budget Office last month forecast Trump’s tariffs would boost US government revenues by $4tn over the coming decade. That would help pay for tax cuts in Trump’s One Big Beautiful Bill Act, which is projected to increase borrowing by $4.1tn over the same period.The shift in market sentiment comes after months of turmoil in Trump’s economic strategy, including his trade war with trading partners such as China and his attacks on the US Federal Reserve.

Indeed, the appeals court ruling - which overturns Trump's tariffs - was the catalyst behind the US Treasury bond sell-off on Tuesday and Wednesday, analysts said, as investors worried that reduced tariff revenues would lead to a greater glut of Treasury issuance.Thierry Wizman, a global rates strategist at Macquarie Group, said: “If the bulk of Trump’s tariff programme is nullified by the courts some analysts will cheer, inflation will subside, growth may improve, and the Fed may be more inclined to ease monetary policy. But if the focus is on debt and deficits at that time, the bond market may riot.”

He added: “The risk that tariffs go away but the [One Big Beautiful Bill Act] stays may become the dominant risk for [US Treasuries] over the next few weeks.”Robert Tipp, head of global bonds at PGIM Fixed Income, said there was “a hope that tariff revenue can help control the budget deficit”.To be sure, even with tariff revenues, investors warn about the daunting scale of the US government’s borrowing needs.Des Lawrence, senior investment strategist at State Street Investment Management, said if the tariffs “were put on pause, it deprives Uncle Sam of a revenue source”. But the “bigger negative picture” is the sheer scale of government spending, he said. Without tariff revenue, the CBO expects US debt relative to GDP to surpass its second world war peak by 2029.

“It’s helpful in plugging a gap, but there’s still a big issue in America spending much more than it’s receiving,” Lawrence said, and he too is right as we showed a few weeks ago when we demonstrated that despite record tariff revenue, the US budget deficit hit a whopping $291bn in July, the second highest deficit for the month on record.

And now the fate of the US bond market is in the hands of a handful of supreme court justices, whose decisions are never taken on the merits of the underlying argument but are purely and unapologetically political. Last week, the Court of Appeals ruled against the Liberation Day tariffs, arguing that the emergency powers law did not give the US president the legal authority to impose these tariffs. And last evening, the Trump administration appealed this decision before the Supreme Court, and the enforcement of the earlier ruling has been delayed until the Supreme Court can review the case. So, pending the Supreme Court decision, tariffs remain in effect.

But if Trump loses this appeal, that key source of revenue would quickly dry out. Undoubtedly the administration will already have alternatives up its sleeve –with sectoral tariffs a key candidate– but it would unleash a new wave of uncertainty that could sap confidence. No wonder Trump has said that if the Supreme Court does not overturn the Appeal court decision, the consequences would be catastrophic for the US: he is, after all, correct.

Source: Zero Hedge

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Warren Takunda

Economic

September has long carried an unfavourable reputation for global equity markets, and European stocks are no exception.

Historical data reveals that the month consistently delivers weak performances for major continental indices, echoing the negative seasonal pattern seen on Wall Street.

Over the past 30 years, the Euro Stoxx 50 index, Europe’s leading blue-chip benchmark, has posted an average September loss of 1.56%, narrowly trailing August’s 1.59% decline, which ranks as the worst month of the year. In 15 of those 30 years, the index closed the month in the red, underscoring a near-coin toss probability of a negative outcome.

The negative seasonality remains intact even when narrowing the lens to the past decade. Since 2014, the Euro Stoxx 50 has recorded an average 1% drop in September, with six out of ten instances ending in losses.

And it’s not just the Euro Stoxx 50 feeling the September slump. The broader Euro Stoxx 600, which captures a wider slice of the market, has also stumbled during this month, with an average loss of 0.96% since its launch in 2002.

That mirrors the S&P 500’s performance, which has lost about 1% on average during the same month over recent decades, the worst return of any month for US equities.

The September seasonal weakness in equity markets may be linked to a confluence of factors: post-summer rebalancing by institutional investors, renewed macroeconomic uncertainty heading into the year-end, and traditionally lower trading volumes following the holiday period. Why September Tends to Spook European Equity Markets_1

Why September Tends to Spook European Equity Markets_1

National indices not spared

Across Europe’s major country indices, the September effect is equally pronounced.

Germany’s DAX index has delivered an average return of -1.62% in September, second only to August in terms of weakness, with a winning rate of just 47%.

France’s CAC 40 fares similarly, averaging a 1.49% decline in September, its poorest month of the year, although it manages a slightly better 53% winning rate.

Italy’s FTSE MIB index, while averaging a flat 0% return in September over the long term, is currently on a streak of four consecutive negative Septembers.

10 European stocks suffer steepest September setbacks

At the individual stock level, several of Europe’s heavyweight names have demonstrated a persistent pattern of September underperformance, with average losses outpacing their monthly norms and, in many cases, marking September as the worst-performing month of the year.

Infineon (Germany): The semiconductor group has an average September loss of 6.13%, its weakest month historically. The stock has closed lower in four consecutive Septembers, with its worst drop of 52.34% occurring in 2001.

Vivendi (France): With a dismal 33% winning rate in September and an average loss of 4.07%, the French media firm experienced a record monthly drop of 66% in 2021.

Airbus (Netherlands/France): The aerospace giant has fallen in six straight Septembers, averaging a 4.01% decline. Its worst September came in 2001, with shares plunging 37.04%.

LVMH (France): Europe’s largest luxury group averages a 3.42% September drop, despite a marginally better 53% win rate. The worst September loss came in 2001, at -34.71%.

Société Générale (France): The French bank posts an average September return of -3.11%, with a 47% win rate. Its most severe drop was -40.38% in 1998.

Schneider Electric (France): The electrical equipment firm has an average September return of -2.16%, with its steepest fall of 34.43% occurring in 2001.

E.ON (Germany): The utility company averages a 2.18% September loss with a 43% winning rate. Its worst drop came in 2015, at -24.03%.

Deutsche Post AG (Germany): The logistics and courier group averages a 1.97% loss in September. It saw its sharpest monthly decline of -22.41% in 2002.

Kering (France): Another luxury player, Kering averages a 1.76% drop in September with a 43% win rate. The worst September came in 2002 (-23.35%), and the stock is currently on a four-year losing streak.

SAP (Germany): Europe’s largest software company averages a 1.6% September decline. A six-year streak of negative Septembers ended in 2024, though the stock once dropped 40.98% in the month back in 2002. Why September Tends to Spook European Equity Markets_2

Why September Tends to Spook European Equity Markets_2

Source: Euronews

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Adam

Economic

At 1330 BST we will get the latest reading of the US Non-Farm Payrolls report. Economists are expecting a reading of 75k, up slightly from the 73K for July. The unemployment rate is expected to inch up to 4.3% from 4.2%, and average hourly earnings are expected to drop slightly to a 3.8% annual rate from 3.9% in July.

Revisions will also be watched closely, after a large 258k downward revision to the May and June numbers. This is what ignited the ire of Donald Trump after last month’s report, which resulted in him firing the head of the Bureau of Labor Statistics who produce the numbers. Since then, there has a been a huge tussle between the President and the Fed, which has resulted in a recalibration of interest rate expectations for the US, and a large number of cuts getting priced in.

Politics and payrolls don’t usually mix well, but so far, the impact on financial markets has been small with both US bonds and stocks outperforming their global peers. However, the significance of payrolls beyond the financial realm means that the stakes are high as we lead up to today’s report.

A pivotal report for 2025

There is a sense that the August report could be pivotal for financial markets. A reading around consensus would be a sign that the US labour market is slowing down sharply. It would be the latest in a series of weaker employment data points , after weaker job openings and a 54k reading for ADP private sector payrolls last month. Initial jobless claims also ticked up last week to the highest level since June. Combined, this data paints a picture of a rapidly softening labour market.

The market backdrop

Ahead of this report, the interest rate futures market has fully priced in a rate cut from the Fed for September. There is also an 87% chance of a cut in December and a 57% chance of a cut in October. Between now and the start of 2027, the Fed Fund Futures market is expecting 6 rate cuts, far higher than rate cuts expected elsewhere, like the UK and Europe. In the UK, the neutral rate could be closer to 4%. In the US, the neutral interest rate is currently considered to be below 3%.

The risk of an upside NFP surprise

Due to the rapid repricing of US interest rate expectations in recent months, the biggest risk from a market perspective is an upside surprise to today’s payrolls number. Although historically payrolls tend to underperform in August, some expect a stronger than expected reading for payrolls for last month, and for this labour market report to paint a less dire picture of the US economy. There are several reasons why job growth could be stronger than expected. Firstly, the labour force participation rate is trending lower, which could keep the unemployment rate artificially low, as people leave the workforce and so do not get counted as unemployed. The drop to the lowest level since 2023 in the last reading for the participation rate is worth watching closely.

Secondly, other signs suggest that the US economy is ticking along nicely. For example, the ISM service sector survey rose to its highest level since February. The gain was driven by a surge in new orders, along with a sharp pick up in business activity, which bodes well for the future. The labour market is a lagging indicator, and if sentiment data is strengthening, then the recent deterioration in the labour market could be a temporary blip.

The market impact

The backdrop to this report is worth noting: the S&P 500 reached a record high on Thursday, and so far in 2025, US treasuries are outperforming European and UK sovereign bond yields across the curve. Thus, if this NFP report is not as dire as some expect, then we could see three things happen. Firstly, a sharp upswing in US Treasury yields. It could also trigger a reduction in US interest rate expectations, although we think that the September cut is a done deal at this stage. However, a stronger NFP report for August could cast doubt on the potential for rate cuts further down the line.

Secondly, a decline in stocks. Earnings season, and especially upward revisions, have been the biggest drivers of US stock market performance in recent weeks. As earnings season draws to a close, the market is losing a key pillar of support. If expectations of interest rate cuts get scaled back on the back of a strong payrolls report, then this could also weigh on US stock prices, and the magnificent 7 tech stocks, in particular. These stocks have had a strong run in recent weeks alongside growing expectations of rate cuts and have been a key driver of the S&P 500 rising to fresh record highs.

Lastly, the gold price could fall if payrolls are stronger than expected. One of the big drivers of the gold price to fresh record highs in recent days has been expectations of US rate cuts, and what this could mean for inflation. If rate cut bets get scaled back, then inflation fears could ease, which may hurt the world’s most famous inflation hedge.

Overall, there is a lot resting on this report, and there could also be political ramifications if President Trump does not like what he sees.

Chart 1: S&P 500 and the Magnificent 7 total returns index, YTD chart, normalized to show how they move together. In recent weeks, the Mag 7 outperformed the overall S&P 500 index, as you can see below. If a stronger payrolls report weighs on Mag 7 stock prices, then this could have a determinantal impact on the overall index.

Source: xtb

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FxPro

Economic

Stocks

Forex

Dollar

For a while, the US dollar became the cleanest shirt in a laundry basket. Treasuries were not being sold off as quickly as European bonds. Yields on British gilts soared to their highest levels since 1998, for French debt it was the highest since 2008, and for German bunds since 2011, against the backdrop of concerns about fiscal discipline. Investors are concerned that Rachel Reeves will not be able to close the 35 billion pound budget gap, that François Bayrou’s government will resign, and that Friedrich Merz has gone too far with fiscal stimulus.

Against the backdrop of political unrest in France and fears over the global debt crisis, the US dollar was bought as a safe-haven asset. Rumours of Hiroshi Moriyama’s resignation as leader of Japan’s ruling Liberal Democratic Party did not allow the yen to resist the dollar.

Disappointing US labour market statistics helped bring the greenback bulls back down to earth. Job vacancies fell to their lowest level in 10 months, hiring slowed, and the unemployed needed more time to find new jobs. As a result, the futures market raised the chances of the Fed’s monetary expansion in September to almost 100%. The USD index retreated from the upper limit of the consolidation range from 97.6 to 98.6.

Stocks

The US stock market began a difficult period with a decline but quickly recovered. September is the worst month for the S&P 500. According to research by Bank of America, since 1927, the broad stock index has fallen in 56% of cases, by an average of 1.17%. The first year of a presidential term has been even worse, with 58% cases of decline, averaging 1.62%. UBS claims that over the past decade, the market has fallen by an average of 2% in September.

The S&P 500’s fundamental valuations do indeed appear to be overestimated. They exceed 22 times expected annual earnings, which has not happened in 35 years, except for the dot-com bubble and the pandemic. Market concentration is now at its highest, with the share of six technology giants in the broad stock index exceeding 30%. In such conditions, news from large issuers can shake the entire market.

Unsurprisingly, news that Alphabet had avoided a strict antitrust ruling to sell Chrome and that Apple intended to launch AI-based web search tools for Siri, allowed the S&P 500 to quickly recover its lost ground.