SignalPlus Macro Analysis Special Edition: September Shock?

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

The core report data is also weak, with 80% of industries showing negative employment growth in August, reinforcing expectations of a rate cut this month, bringing the Fed’s terminal rate forecast down to 2.9%, the lowest point in the current cycle. This is a significant reduction of 50 basis points from the early summer rate of 3.4%.

After the non-farm data was released, rate traders estimated that the probability of a 50 basis point rate cut this month is very low (about 5%), but the probability of a total of three rate cuts by the end of the year is 92%. The one-year forward September Federal Reserve futures (September 2026) fell 15 basis points on Friday, with market pricing indicating nearly three rate cuts by the end of 2026.

Inflation expectations remain controlled: as investors reassess the economic slowdown outlook, inflation swaps and long-term bond breakeven inflation rates have declined, with the market forecasting this week’s CPI data at 2.92%. Traders will focus on confirming signals of potential inflation slowdown to support the Fed’s dovish shift after the Jackson Hole meeting. In the coming months, data will reveal whether initial signs of tariff-related price pressures emerge — at this point, any hawkish high-inflation data is unfavorable for risk assets.

The breakeven inflation rate edged down slightly on Friday, which is positive for long-term bonds (earlier, due to ongoing fiscal concerns, U.S. Treasury yields approached 5%). After testing the 5% threshold earlier this week, the 30-year U.S. Treasury rebounded, and the 10-year yield has fallen sharply, approaching the 4% level.

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

Cryptocurrencies traded sideways overall last week, but Bitcoin significantly underperformed compared to similar assets, stocks, and spot gold. Net buying momentum weakened: digital asset token inflows shrank sharply, and centralized exchanges reported low willingness for new capital inflows, with investors preferring to hold and observe. The short-term outlook is more challenging, and defensive strategies are recommended to cope with seasonal volatility in risk assets. Additionally, caution is advised regarding risks related to digital asset tokens: as net asset value premiums continue to narrow, downside convexity concerns may intensify during declines. Happy trading!