Last week, a series of U.S. employment data fueled concerns about a potential economic recession, causing the S&P 500 to drop 4.2%, marking its worst weekly performance since January 2022. U.S. 2-year and 10-year Treasury yields fell, reflecting market expectations of a more aggressive rate cut path for the rest of the year, with the 10-year/2-year Treasury yield spread turning positive. The U.S. dollar index also declined as expectations for more significant Federal Reserve rate cuts rose. Below is a recap of key economic data from last week:

• United States ISM PMI: The U.S. Manufacturing PMI for August came in at 47.2 (previous 46.8), remaining in contraction territory for the fifth consecutive month. This continued to reflect the restrictive monetary policy and uncertainties around the U.S. election, dampening corporate investment sentiment. Meanwhile, the U.S. Services PMI for August was 51.5 (previous 51.4), marking two consecutive months of expansion, with all sub-indices in expansionary territory.

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• United States Employment Report: The U.S. unemployment rate for August was 4.2% (previous 4.3%), in line with market expectations. Nonfarm payrolls increased by 142,000 (previous 89,000), falling short of market expectations of 164,000. Additionally, nonfarm payrolls for June and July were revised downward, signaling further cooling in the U.S. labor market.

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• Canada Monetary Policy: On September 4, the Bank of Canada (BoC) announced a 25 basis point rate cut, marking the third consecutive rate cut since June. Although inflation has returned to the target range, the BoC has begun to express concerns about the risk of deflation due to economic weakness. As a result, markets now expect that if the Canadian economy continues to deteriorate, the BoC may adopt a more aggressive rate-cutting approach.

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Key Data to Watch This Week

• China CPI (September 9): China’s July CPI rose 0.5% year-on-year (previous 0.2%), driven primarily by food prices due to extreme weather. Excluding food and energy, core CPI was 0.4% (previous 0.6%). The market expects August CPI to rise to 0.7%, supported by seasonal demand during the summer and government policies promoting service consumption.

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• United States CPI (September 11): U.S. CPI for July increased 2.9% year-on-year (previous 3.0%), while core CPI, excluding food and energy, rose 3.2% (previous 3.3%), both in line with market expectations and marking the lowest growth since April 2021. According to the Cleveland Fed’s CPI forecast, August CPI is expected to fall to 2.56%, with core CPI projected to ease to 3.21%.

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• Eurozone Monetary Policy (September 12): The ECB left rates unchanged during its July meeting, mainly due to rising wages, which kept services inflation elevated. However, recent data now supports a rate cut, with August’s harmonised index of consumer prices (HICP) falling to 2.2% year-on-year (previous 2.6%). Additionally, adjusted wage growth, which has been a key driver of inflation, dropped to 3.5% in the second quarter (previous 4.7%). As a result, markets widely expect the ECB to cut rates again in September.

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