Daily Summary: "Heat" of the NFP Print Cools Market Sentiment ⬇️

• NFP report as the main driver of market volatility. The U.S. economy created 162,000 nonfarm payroll jobs in August, tripling the market consensus of approximately 55,000. The unemployment rate held steady at 4.1%, while average hourly earnings rose 0.3% month over month. The surprisingly strong data pushed the probability of a Fed rate hike at the September meeting to approximately 58%, up from just under 50% the day before. Two-year Treasury yields surged to their highest level since January 2025, and investors faced the paradox where good economic news became bad news for markets.

• Trump vs. the Fed and new trade threats. President Donald Trump demanded an immediate interest rate cut from the Federal Reserve shortly after the release of the labor market data, arguing that a strong economy means better creditworthiness for the country. In a post on his Truth Social platform, he issued an unprecedented ultimatum: if Fed Chair Kevin Warsh does not cut rates, Trump will block trade with countries against which the U.S. runs a trade deficit. Markets treated these remarks more as verbal pressure than a real policy announcement, focusing instead on macroeconomic fundamentals. Economists point out the paradox of this threat, as cutting off trade would trigger a supply shock and an inflation spike, which would force the Fed to tighten monetary policy even further.

• Geopolitical tensions drive energy prices higher. A renewed escalation of tensions between the U.S. and Iran pushed Brent crude toward its strongest weekly gain since July, with prices holding near $90 per barrel. The price of diesel in the United States hit a record $5.85 per gallon, representing a nearly 60% year-over-year increase. Conflicts in Ukraine and around Iran are destroying refining capacity, triggering a global supply crisis for petroleum products. The high price of diesel, which is an input cost for transportation, agriculture, and logistics, poses a serious pro-inflationary risk that could force the Fed to act regardless of other data.

• Macro data confirm the strength of the U.S. economy, but inflation raises concerns. The manufacturing PMI came in at 54.6 points in August, marking the eighth consecutive month of expansion, while the services index rose to 55.4 points with a very strong business activity index at 61.7 points. At the same time, the ISM manufacturing prices index remained at an alarmingly high level of 71.1 points, and price pressures in services reached their highest level in nearly four years. Fed Governor Christopher Waller noted that his September decision would depend primarily on inflation data, and that a renewed acceleration in price growth could lead him to support a rate hike. The yield on 10-year U.S. Treasuries approached approximately 4.8% this week, reflecting a growing premium for fiscal and inflationary risk.

• U.S. indices under pressure following the labor market report. The Dow Jones Industrial Average fell approximately 258 points, or 0.5%, heading toward a weekly loss of around 0.3%. The S&P 500 lost 0.3% during the session, although it maintained a slight weekly gain of 0.2%. The Nasdaq Composite also pulled back 0.3%, but was up 0.4% on the week. Investors could not celebrate the strong employment data, as it increased the risk of further monetary policy tightening by the Fed.

• European and Asian indices in mixed sentiment. Japan's JP225 stood out with a 1.52% gain, Poland's W20 rose 1.22%, while China's CHN.cash added 1.16%. European indices performed more weakly, with Spain's SPA35 rising 0.22%, while Germany's DE40 was virtually flat and Italy's ITA40 lost 0.40%. Volkswagen shares jumped 6% after the company announced plans to cut 50,000 jobs as part of its "Future Plan 2030" transformation program in response to tariff pressures and competition from China.

• Lululemon in a historic selloff, Tesla disappoints with Cybercab. Lululemon Athletica shares plunged nearly 20% to their lowest level in eight years after the company cut its annual forecasts for the second time this year and reported the first-ever simultaneous decline in comparable sales across all key markets, including a 12% drop in North America and a surprising 8% decline in China. Sales of its flagship women's leggings, accounting for over 20% of revenue, fell 20% in the quarter. Tesla lost 6% after the long-awaited Cybercab robotaxi presentation disappointed investors with a lack of new information on pricing, production timeline, and regulations, while CEO Elon Musk did not appear at the closed event in Austin. On the positive side, DocuSign shares rose after better-than-expected quarterly results and raised full-year guidance.

• Dollar strengthens, yen's outlook uncertain. The USDIDX dollar index gained 0.14% following the strong NFP report, and USDJPY rose 0.16% to 156.08, reflecting growing expectations for a rate hike in the U.S. The Japanese yen, despite strengthening significantly during the week on expectations of a Bank of Japan rate hike, may weaken after the actual decision in a "buy the rumor, sell the fact" scenario, according to currency strategists. The euro and pound weakened slightly against the dollar, with EURUSD falling 0.09% to 1.1613 and GBPUSD dropping 0.06% to 1.3513. The Polish zloty weakened slightly, with USDPLN declining 0.06% to 3.7123 and EURPLN losing 0.19% to 4.3112.

• Gold and silver retreat after strong labor market data. Gold fell 1.22% to $4,417.90 per ounce, heading toward its second consecutive weekly decline, and during the session hit a low of $4,419, representing a more than 2% weekly loss. Silver dropped even more sharply, losing 1.66% to $65.81 per ounce, while shares of mining companies such as Kinross, Franco-Nevada, and Eldorado Gold fell more than 3.5%. Brent crude pulled back 0.16% to $95.64 per barrel, and WTI lost 0.83% to $90.90, although on a weekly basis both grades were heading for clear gains driven by tensions surrounding Iran. Natural gas gained 0.99% to $2.95, and record diesel prices in the U.S. remain a key inflationary risk factor for the entire economy.

• Cryptocurrencies remained in the shadow of traditional markets. Major cryptocurrencies were not in the spotlight on a day dominated by the labor market report and its implications for Fed monetary policy. Rising expectations for an interest rate hike and a stronger dollar traditionally act as negative factors for digital assets. The attention of cryptocurrency market participants is now turning to upcoming inflation data, which will determine the further direction of Fed policy and could decide the short-term sentiment across the entire risky asset segment.