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reporter of china business network: cai ding editor of china business network: lan suying, sun yuting

on friday, september 6, local time, the u.s. market welcomed the release of august non-farm payrolls data, which is the last important employment data before the federal reserve's september fomc meeting and may also be the key to determining the extent of the interest rate cut. the data showed that the unemployment rate in august fell for the first time in six months. prior to this, the unexpected decline in jolts job vacancies data also pointed to the challenges that the u.s. economy may face.

successive economic data showed that the labor market continued to cool, causing investors to sell risky assets. after the release of non-farm payrolls data, the us dollar index fell sharply in the short term, but then recovered all the losses. the three major us stock indexes closed down collectively, with the nasdaq and dow jones industrial average falling more than 400 points that day.

image source: meijing mapping

citi analysts andrew hollenhorst and gisela hoxha said:the u.s. job market is on the verge of a sharper weakening。

with less than two weeks left until the fomc interest rate meeting in the middle of this month, market focus has shifted to the performance of major asset classes during the federal reserve's monetary easing cycle and the logic behind it.

carlos de sousa, portfolio manager at swiss bank vontobel, said in an interview with daily economic news that if the us economy slows down,the strong dollar narrative will end, which will boost sentiment towards emerging markets.

25 or 50? the labor market continues to cool, and the extent of the fed's interest rate cut remains uncertain

the last major employment data before the september fed decision was released on friday. this employment data was released the day before the quiet period of the september fomc meeting of the federal reserve, which may be the key to deciding whether to cut interest rates by 25 basis points or 50 basis points.

data shows that the number of new non-farm jobs in the united states in august was mixed.although the unemployment rate dropped to 4.2%, the first month-on-month decline since march this year, the 142,000 new jobs were far below the expected 165,000, and the july data was significantly revised down from 114,000 to 89,000.

bloomberg reported that the august non-farm payrolls datathis has brought the average number of new jobs in the united states in the past three months (june-august) to the lowest level since mid-2020.

before the release of the non-farm report,job vacancy data was the first to "explode"——the number of jolts job vacancies in the united states in july was 7.673 million, the lowest since the end of 2020, far below the expected 8.1 million, and the previous value was revised down from 8.184 million to 7.91 million.

citi analysts andrew hollenhorst and gisela hoxha said:the u.s. job market is on the verge of a sharper weakeningjob openings are expected to continue to decline in the coming months and the unemployment rate to rise at a faster pace.

after the release of the august non-farm payrolls report, market speculation that the fed will cut interest rates by a larger margin at its next meeting has intensified. cme's "fed watch" tool shows that traders once raised the probability of a 50 basis point rate cut to 50%, but as of press time, the probability has dropped to 43%. in other words,traders still see a higher chance of a 25 basis point rate cut this month than a 50 basis point one.

president of the federal reserve bank of new york and permanent voting member of the federal reserve fomcwilliamsin a speech after the release of the non-farm data, he said,it is appropriate to cut the federal funds rate now". he also pointed out that the fed has made "significant progress" in its two goals of maintaining price stability and achieving full employment, and the risks to the two goals have reached a "balanced" state. the inflation rate is gradually moving towards the 2% target, and it is appropriate to lower the federal funds rate now.

brian coulton, chief economist of fitch ratings, also said in an email to the reporter of daily economic news that "although the august non-farm payrolls report showed a moderate increase in us employment, this will not change the current narrative.employment is indeed slowing, but only gradually.”

nick timiraos, a reporter for the wall street journal who is known as the "fed's mouthpiece," said, "the market is currently pricing in a 25 or 50 basis point rate cut. the overall non-farm data is not bad enough to change the baseline expectation to a 50 basis point rate cut, but considering the revised data, it is not convincing enough to completely dispel speculation about a larger rate cut."

the investment "code" of the interest rate cut cycle: "smart money" is flowing into emerging markets

the continued cooling of the u.s. job market has made the federal reserve's monetary easing cycle a foregone conclusion, and the market has also begun to pay close attention to the performance of various assets and the logic behind them in this upcoming interest rate cut cycle.

after the release of the august non-farm payrolls data, the us dollar index fell sharply in the short term, but then recovered all the losses. as of the close of the day, it was reported at 101.19 points. the three major us stock indexes closed down collectively, with the nasdaq down 436.83 points, a cumulative drop of 5.77% this week, the largest single-week drop since january 2022; the s&p 500 fell 1.73%, a cumulative drop of 4.25% this week; the dow fell 410.34 points, a cumulative drop of 2.93% this week. both the s&p 500 and the dow recorded their largest single-week declines since march 2023.

"the relatively high economic growth in the u.s. compared to other developed countries has supported the dollar's strength after the covid-19 pandemic," said carlos de sousa, portfolio manager at swiss bank vontobel.but if the u.s. economy slows and loses this special advantage, the dollar will weaken further.”

a reporter from the daily economic news noticed that since late last month, as federal reserve chairman powell clearly turned dovish at the jackson hole symposium, market expectations for a september rate cut by the federal reserve have risen sharply, and emerging markets have quickly gained favor with capital.

data from epfr, a global fund flow monitoring agency, shows that the attractiveness of emerging markets is increasing. in the five trading days between august 22 and august 28,emerging markets recorded net inflows of $7.12 billion, while developed markets recorded net inflows of $6.48 billion.

carlos de sousa pointed out in an interview with the daily economic news reporter, "as global interest rates fall, all emerging market debt asset classes will benefit from lower financing costs.as the federal reserve and other developed market central banks begin to cut interest rates, risk-free returns will gradually become less attractive. once emerging market bonds begin to receive net inflows, risk premiums will compress, which will boost bond prices in such markets and ease financing conditions for emerging market countries and companies.

"in fact, borrowing costs in emerging markets began to fall before the fed actually started cutting interest rates, because expectations of rate cuts had reduced the risk premium of local currencies and hard currencies," added carlos de sousa.

regarding the investment logic of major asset classes,ubsanalysts said that although the investment logic during the previous federal reserve easing cycles can be used as a reference, investors are still advised to remain cautious.

ubs analysts said in a research note to clients earlier this week that due to the decline in cash returns, the bank believes that investors should consider shifting their investments to diversified fixed income and dividend income strategies as an alternative to cash. the report also suggested that investors should consider increasing their allocation to defensive assets such as gold and the swiss franc to hedge against potential market volatility.