US markets traded lower ahead of the Labor Day long weekend, markets will be closed Monday (today).

The ASX200 rose slightly last week and clocked its fifth month of rises since April, up 2.63% in August. Local futures point to a soft start after a weak lead from Friday.

Good Morning,

The ASX200 finished 5 points or 0.06% higher last week at 8973 which saw the index lock in a monthly gain of 2.63%. It was the ASX200’s fifth consecutive month of gains which has seen the index rally over 25% from the lows in April. 

This week, the main highlight on the local calendar will be Wednesday's Q2 GDP release. According to Tony Sycamore at IG, the preliminary forecast is for a rise of 0.6% QoQ, lifting the annual growth rate to 1.7% (from 1.3% previously), in line with the Reserve Bank of Australia’s forecast of 1.7% for December 2025.

If this forecast proves accurate, it will support the case for further easing of RBA monetary policy as it indicates the Australian economy is continuing to grow at a pace significantly below its potential growth rate of 2.5%-3%. 

The Australian interest rate market is pricing in -5bp of rate cuts for the RBA’s meeting September 30th, a cumulative -25bp of rate cuts for the RBA’s meeting November 4th and a cumulative -34bp of rate cuts for the RBA’s Dec 9th meeting. 

What happened last Friday

US equities slipped Friday. The S&P500 closed down -0.6% and the Nasdaq lost -1.2%. AI-linked stocks led declines. Nvidia was down more than -3%. Some earnings disappointed. Dell was down almost -10%, amid pressure on margins despite strength in the outlook for AI-related server demand. Marvell, a semiconductor company, slipped -19% as current quarter forecasts disappointed. In contrast, Alibaba was 13% higher. The WSJ reported the company has developed a more versatile chip.

Despite a negative end to the month, The S&P500 was 1.9% higher over August, and the Nasdaq managed a 1.6% gain.

US PCE data was in line. The core PCE inflation measure was up 0.3% mom and 2.9% yoy, as expected and inching further away from the Fed’s 2% target. Real spending was up a resilient 0.3% mom, but the trend is soft, up just 1.0% on a 3mth annualised basis. Advanced goods trade showed the trade deficit widened in July as imports jumped ahead of August tariff increases. Inflation expectations in the University of Michigan Consumer confidence measure ticked down from the preliminary release.

On Friday, Fed’s Waller reiterated his argument the appropriate course of action was to look through tariff inflation impacts and indicated he supports a September cut, no surprise after the dovish dissent in July, but his remarks didn’t suggest he yet sees the need for rapid easing.

He said he doesn’t currently see the need for -50bp but said that could change if data “points to a substantially weakening economy and inflation remains well contained,” and added he anticipates “additional cuts over the next three to six months, and the pace of rate cuts will be driven by the incoming data”.

San Francisco’s Daly said “it will soon be time to re-calibrate policy to better match our economy,” adding that “we can’t wait for perfect certainty without risking harm to the labor market.”

Market pricing is little changed. There are -22bp priced for September and -56bp by year end. The 2yr yield was -1bp lower on Friday at 3.62%, to be -8bp lower over the week and 10yr yields rose 2.5bp Friday to 4.23%, -2.5bp lower over the week. The 30yr yield was 5bp higher on Friday and over the week at 4.93%. 30yr yield spreads to the 5yr widened to 123bp, the widest since June 2021. A Fed more willing to look through inflation risk and questions over independence is adding to steepening pressure.

On Friday, France’s CPI dipped to 0.8% due to a slowdown in services, while Spain and Italy saw unchanged readings of 2.7% and 1.7%. Each were a tenth below expectations, though Germany’s reading came in a tenth higher than expected at 2.1%.

The Eurozone wide number is expected to hold steady at 2.0% YoY on Tuesday. Finland’s Rehn said inflation risk was ‘currently tipped to the downside’.

Summer is Over, What’s coming next, Extract Chris Weston Pepperstone

Sentiment on near-term market direction can be incredibly fickle, and no more so than in forums or on social media. Even though buying risk at all-time highs over the past two years has consistently led to positive returns, many who are active in the markets feel drawn to shorting risk at the highs and to make that “hero call” that injects a rush and a belief that they’re connected to the matrix. and have essentially timed a reversal lower in risk to perfection.

Since the GFC, many have become hard-wired to perpetually search out the next big bear thematic, and the trigger point that could cause the next -20%-plus drawdown in risk assets. Yet the fact is that 90%-plus of these “emerging bear market themes” blow over quickly, and having an optimistic stance on market developments has served many well over the years. 

Still, in the fine art of risk management, it remains prudent to identify and monitor emerging risks and react dynamically if the concerns truly build towards a consensus and the trading environment changes.

With a large percentage of the daily traded volume coming from systematic players and passive entities, the flows and price action speak more to the underlying environment and trend than to macro views. Trading conditions can change quickly, so let’s consider the reality of the big-picture set-up as we roll into September.

The MSCI World Equity Index is just 0.7% off its all-time-high. US high-yield and investment-grade corporate credit spreads are near multi-year tights. The US Treasury yield curve continues to steepen (the UST 2s vs 30s yield spread is now the highest since December 2021), and levels of implied cross-asset volatility remain below the 10th percentile of their respective 12-month ranges.

From that standpoint, life for risk bulls is sweet and really since the April lows, risk markets have been exceptionally kind to those who stayed the course and added risk even on shallow pullbacks.

This bullish trend is well explained by the “Goldilocks” macro environment: the metaphorical safety blanket of the “Fed Put”, notably falling US real rates, US broad money supply growth at its fastest YoY pace since July 2022, deficit spending, and record corporate buybacks. 

Add in reasonable economic growth, consistently stronger-than-forecast US economic data, and solid Q2 earnings growth, and the bullish case for risk appreciation has been clear.

That said, scratch beneath the surface and there are reasons to think that the trading environment (i.e. volatility, daily ranges, liquidity, price action) could soon evolve and challenge what many see as frothy sentiment and one-sided, concentrated positioning.

As we roll into September, Monday’s trading session will likely be a write-off due to the US Labor Day holiday. From Tuesday, the cogs of the market move into higher gear, with many of the big hitters returning from their summer break in the Hamptons.

Volumes and order-book liquidity should therefore build, and those returning with revitalised minds and fresh perspectives may rotate positioning, add cheap portfolio hedges, or trim core holdings.

It seems unlikely that, simply because we’ve moved into September, we’ll suddenly see a radical shift in conditions, especially as the macro environment hasn’t meaningfully changed. What will dictate the trading landscape are the economic data outcomes and this week’s event risks. 

For short-term traders, though, frothy markets, a build-up of leverage and short-vol positioning can quickly lead to sharp changes in sentiment and the technical positioning.

September’s record remains on many minds: historically the weakest month for US equities, Treasuries, and even gold. But few managers will liquidate core holdings on seasonality alone.

Late last week, US semiconductors lost momentum and traded poorly. Nvidia, for instance, tried to break above the US$184 ceiling it has held since late July, but was quickly knocked back to US$174 and now possibly eyes a test of the 50-day MA to US$170.52. Lower-quality stocks failed to attract buyers, cyclical equities underperformed defensives/low-volatility plays, and high-growth/high-beta names rolled over a touch.

The VIX looks to have found a floor below 15%, while we have seen a modest rise in the relative demand for out-of-the-money S&P 500 1-month vol relative to 1-month ATM vol.

Gold and silver have both been stealth performers, with gold notably closing Friday at an all-time closing high. While some of this can be attributed to systematic players building longs as they chase the upside momentum, we also see falling US real rates offering tailwinds to the gold price... however, multi-asset money managers are also seeing gold as a hedge against the ongoing risk of Fed independence being compromised, or that incoming data could show the Fed falling behind the curve.

Here are some emerging risks outside of the US for traders to consider:

-China: The A50 Index has closed higher in 10 of the past 11 weeks, while the CSI300 has gained in 9 of the past 10 weeks, with August trading activity setting new records. Liquidity, corporate earnings, and AI enthusiasm have driven animal spirits but regulators are paying close attention.

Margin-financed transactions are up 20% YTD, with outstanding margin debt at its highest since 2015. Many will recall the 2015 crash, when the CSRC forced brokers to cut leverage, and backed by the surprise -4% CNY devaluation, the CSI 300 collapsed -45% in just two months.

-Europe: UK and German long-end yields are consolidating at recent highs, and renewed selling could drive yields higher still. French equities underperformed last week on political developments, with traders closely watching the spread between French OATs and German Bunds.

-US: Labour market in focus with JOLTS (job openings, layoffs, quits rate), weekly jobless claims, and nonfarm payrolls (NFP). Also, ISM manufacturing and services surveys (both expected to improve). Fed speakers include Musalem, Williams, and Goolsbee,  the latter two speak after the payrolls report, so markets will be watching closely for any shifts in their guidance.

The US NFP report on Friday is the pivotal release. At Jackson Hole, Jay Powell made clear his concern about a cooling labour market. If payrolls are the Fed’s focus, options dealers should price higher implied volatility across S&P 500 and cross-asset options going into the event.

-Base case: The median estimate from economists is plus 75k jobs, and the unemployment rate eyed to tick up to 4.3%. If this outcome is realised, the Fed should cut -25bp in September, an outcome already implied with 88% probability by interest rate swaps.

-Stronger than expected: Over 150k payrolls, unemployment steady at 4.2%. Fed cut odds priced into swaps should fall to an implied 60–70%, USD rallies, gold trades lower, equities rally modestly as good data is good news for risk.

-Sweet spot for risk: 80k–120k payrolls, unemployment at 4.2–4.3%. This would be cool enough to still justify an insurance rate cut in September, but not weak enough to stoke fears the Fed is behind the curve.

-Weaker than expected: Under 50k payrolls, downward revisions, unemployment at 4.4%. Swaps may price some chance of a -50bp cut, but equity markets would likely treat this as “bad news is bad news,” with labour concerns sparking broader risk-off moves.

Corporate news in Australia

-Macquarie Group ((MQG)) is acting on behalf of Luxury Escapes to sell major shareholders’ stakes in the company.

-NextDC ((NXT)) has appointed Morgan Stanley US and local advisory teams to secure $15bn in funding for “Project Berlin” its 850MW of new hyperscale capacity (West Sydney).

-NZ’s Crimson Education has mandated Barrenjoey Capital Partners for an Australian roadshow.

-FIRB is expected to announce its decision on whether Hanwa can raise it stake in Austal ((ASB)) to 19.9%.

-The Mathieson family has offered to increase its stake in Endeavour Group ((EDV)) in exchange for more control over management.

-John Wylie has lifted his stake in Healius ((HLS)) to 19.8% boosting takeover speculation.

On the calendar today:

-NZ July building permits

-AU Aug ANZ job ads

-AU July building approvals

-EZ July unemployment

-US Labour Day Holiday

-AURIZON HOLDINGS LIMITED ((AZJ)) ex-div 6.50c (100%)

-PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) ex-div 27c (88%)

FNArena's four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

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The table below ranks the 20 biggest percentage winners and losers among stocks in the ASX300 at the end of each trading day.

An added filter requires sufficient daily trading volumes so that stocks with extremely low liquidity are not included.

The composition of both rankings is fully automated, based on raw data. Investors are advised to find context, interpretation and background elsewhere.

FNArena is not responsible for any glitches, omissions or data errors. This daily feature is not investment advice. It is offering a quick status on daily volatility for information purposes only.

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Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On