Another Shift in Perceived Likelihood of A Fed Tightening Later This Month
September 4, 2026
The U.S. labor market last month showed greater-than-anticipated strength. The pivotal factor behind what the FOMC ultimately decides will still be upcoming price data, today’s job market surprise packed enough punch to depress share prices, maintain elevated long-term interest rate levels, lift the dollar, and soften the prices of crypto and precious metals.
The dollar rose 0.3% against the Canadian dollar, in part reflecting weaker Canadian labor statistics than forecast, and the Swiss franc and 0.2% relative to the Japanese yen. The dollar’s value against the British pound and euro remain unchanged from Thursday closing levels, however.
Ten-year sovereign debt yields are unchanged in the U.S., Germany, U.K. and Australia and down just a basis point in France, Italy, Spain and Switzerland. A larger four-basis point slide in the Japanese 10-year JGB yield is an outlier.
While major U.S. equity indices are down about a half percent, European stock market changes are inconsequential so far today. Earlier today, stock market closed up 1.7% in Hong Kong, 1.3% in Japan, 1.5% in Taiwan and 1.6% in South Korea.
The losses in the prices of Bitcoin, gold, and silver amount to 2.5%, 1.2% and 1.3% currently. West Texas Intermediate crude oil costs 0.5% less but remains closer to $91 than $90 per barrel.
U.S. non-farm payroll employment jumped 162k last month, triple what analysts projected, and the June and July gains were revised upward by a combined 55k. 162k was the biggest monthly increase in five months and 40% more than the accrued advance in the three prior months. Labor market participation revived to a 3-month high, and the jobless rate of 4.1% matched expectations, stayed at July’s level and was down from 4.5% last November. Under- and unemployment of 7.7% was down from 7.9% in July and the lowest pace in 14 months. These developments are unlikely to provide sufficient impetus for a Fed interest rate hike in September. Officials are prioritizing inflation over growth, and the jobs report also revealed that the year-on-year rise in average hourly earnings remained unchanged at July’s 61-month low of 3.1%.
The overall strength of the U.S. labor market figures from August contrast with those from Canada, also reported this morning. Such showed a 41.7k decline in employment versus an expected increase of around 15k, a 6.4% rate of unemployment that was the same as in July, and year-on-year wage growth of 2.0%, down significantly from 2.8% in the previous month.
The volume of retail sales in Euroland unexpectedly fell by 0.6% in July, more than halving the 12-month increase to just 0.6%, lowest in two years. The August construction purchasing managers index was also weak, slipping to a 2-month low of 43.0 and registering the 52nd consecutive reading below the 50 level that separates improving activity from a negative trend. While the German sub-index in the contraction sector rose to an 8-month high of 48.9, the French and Italian readings of 37.3 and 41.7 were their weakest in 75 and 48 months, respectively.
Britain’s construction PMI (44.3) revealed a slightly faster contraction in August than July.
Serbian producer price inflation accelerated sharply further to a 42-month peak of 9.0% in August from 6.2% in July.
On a brighter note among European data releases,
- German industrial orders jumped 2.5% in July after an even larger 3.7% in increase in June. Their year-on-year growth doubled to 13.1%.
- Irish quarterly GDP growth in 2Q has been revised steeply higher to 10.2%, most in 21 quarters. Compared to a year earlier, GDP was only a fractional 0.4% lower.
- Estonian industrial production in July rose 0.9% on month and 2.3% on year.
Consumer price inflation in the Philippines of 6.1% in August was similar to the 6.2% reading in July and well above the 0.9% reading in July 2025.
Household spending in Japan (-3.6%) posted their largest 12-month drop in two and a half years during July.
The National Bank of Kazakhstan’s scheduled policy review sent a mixed message, cutting the base rate by 50 basis points to 16.25% rather than 25 bps as was expected but also signaling hesitation against further reductions when looking ahead.
The favorable dynamics of current inflation and inflation expectations created room to lower the base rate at this meeting. At the same time, pro-inflationary factors and risks have intensified, which is reflected in the revision of the forecast estimates for 2027. The room for further rate cuts is therefore limited.
Kazakhstani CPI inflation remains well above the target of 5%, which is now not expected to be achieved before 2028.
The balance of inflation risks remains tilted to the upside. The main risks stem from an expansion of domestic demand amid a stronger fiscal impulse, unanchored inflation expectations, and further movements in fuel prices and utility tariffs. External risks are associated with higher global food and energy prices arising from a possible escalation of geopolitical tensions.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Euroland retail sales and construction PMI, German industrial orders, National Bank of Kazakhstan, U.S. and Canadian labor market situations
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