SignalPlus Macro Analysis Special Edition: September Shock?

As expected, we have entered the highly volatile September period: non-farm employment data slightly missed expectations, with the three-month average growth rate slowing to its lowest level since the pandemic.

Core report data is also weak, with 80% of industries showing negative employment growth in August, reinforcing expectations for a rate cut this month and lowering the Fed's terminal rate expectation to 2.9%, the lowest point of 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, 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 reaches 92%. The one-year forward September Fed futures (September 2026) fell 15 basis points on Friday, with market pricing indicating nearly three cumulative rate cuts by the end of 2026.

Inflation expectations are under control: as investors reassess expectations for an economic slowdown, inflation swaps and long-term bond breakeven inflation rates have both 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 Fed'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 this point, any hawkish high inflation data would be unfavorable for risk assets.

The breakeven inflation rate slightly decreased on Friday, benefiting long-term bonds (which had previously approached 5% due to ongoing fiscal concerns). The 30-year U.S. Treasury bond rebounded after testing the 5% critical point earlier this week, while the 10-year yield has significantly dropped and is nearing the 4% mark.

The stock market was overall flat last week: Nvidia's weakness was offset by other leading stocks and defensive sectors, with the S&P 500 returning to the mid-range of the summer trading zone. As mentioned last week, given the seasonal trend challenges combined with JPMorgan's report showing hedge fund net leverage at high levels, volatility is expected to increase in the coming two months.

Cryptocurrency has consolidated overall over the past week, but Bitcoin has significantly underperformed compared to similar assets, stocks, and spot gold. Net buying momentum has weakened: the buying volume of digital asset tokens has sharply declined, and centralized exchanges report low willingness for new capital inflows, with investors more inclined to hold and wait. The short-term outlook is more challenging, and a defensive strategy is recommended to cope with seasonal volatility in risk assets. Additionally, attention should be paid to risks related to digital asset tokens: as net asset value premiums continue to narrow, concerns about negative convexity may intensify during the downturn.

Wishing you successful trading!