SignalPlus Macro Analysis Special Edition: September Shock?

As expected, we have entered a period of significant seasonal Fluctuation in September: non-farm employment data slightly missed expectations, and the three-month average growth rate has slowed to the lowest level since the pandemic.

The core data in the report is also weak, with 80% of the industry showing negative growth in employment in August, reinforcing expectations for a rate cut this month and bringing the Federal Reserve's terminal rate expectation down to 2.9%, the lowest point in the current cycle. This is a significant reduction of 50 basis points from the 3.4% rate level seen earlier this summer.

After the non-farm data was released, interest rate traders expect the probability of a 50 basis point rate cut this month to be very low (around 5%), but the probability of a cumulative three rate cuts by the end of the year is as high as 92%. The one-year forward September Fed futures (September 2026) fell 15 basis points on Friday, and market pricing indicates that there will be nearly three cumulative rate cuts by the end of 2026.

Inflation expectations are under control: As investors reassess the expectations of an economic slowdown, both inflation swaps and the breakeven inflation rate on long-term bonds have declined, with the market predicting this week's CPI data to be 2.92%. Traders will focus on confirmation signals of potential inflation slowdown to support the Federal Reserve's aggressive dovish shift after the Jackson Hole meeting. Data in the coming months will reveal whether there will be initial signs of tariff-related price pressures — at the current juncture, any hawkish high inflation data is unfavorable for risk assets.

The breakeven inflation rate slightly decreased on Friday, which is positive for long-term bonds (previously, due to ongoing fiscal concerns, U.S. Treasury yields briefly approached 5%). After testing the 5% critical point earlier this week, the 30-year U.S. Treasury bond rebounded, while the 10-year yield, after a sharp decline, is now close to testing the 4% mark.

The stock market was largely flat last week: Nvidia's weakness was offset by other leading stocks and defensive sectors, with the S&P 500 index returning to the middle of the summer trading range. As mentioned last week, given the seasonal trend challenges combined with JPMorgan's report showing that hedge fund net leverage is at a high level, volatility is expected to intensify over the next two months.

Cryptocurrencies have consolidated overall in the past week, but Bitcoin has clearly underperformed compared to similar assets, stocks, and spot gold. The net buying momentum has weakened: the buying volume of digital asset tokens has significantly shrunk, and centralized exchanges report a low willingness for new funds to enter the market, with investors more inclined to hold and wait. The short-term outlook is more challenging, and it is recommended to adopt defensive strategies to cope with the seasonal fluctuations of risk assets. Additionally, caution should be exercised regarding the risks associated with digital asset tokens: as the net asset value premium continues to narrow, concerns about negative convexity during the downside process may intensify. Wish you successful trading!