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MARKETS

Just like clockwork, give investors a reason to sell near record highs, and they'll jump on it. As the story goes, September is seasonally a weak month for equities. Still, if you buy into that kind of seasonal crystal ball, you're probably giving Wall Street too much credit for being predictable.

The real story here isn’t just the calendar turning—it’s investors reacting to an ISM print that was anything but reassuring. Remember, last month’s growth scare was fueled by a dismal read on the employment gauge in July's manufacturing report. While the latest ISM showed a slight uptick in factory employment, it still marked a third consecutive month of contraction.

The bar for this week is sky-high, so any whiff of bad news, even if it’s more anecdotal than earth-shattering, could easily set off a wave of disappointment. In plain terms, America's factory recession is still alive, and the growth scare is back with a vengeance.

Wall Street didn’t just stumble out of the gate—it tripped, rolled, and crashed into what is historically the worst month for U.S. equities. The latest ISM manufacturing update was lacklustre, stoking fears of a hard landing just as we gear up for Friday’s pivotal jobs report.

The S&P limped into the afternoon, teetering on the brink of its worst day since last month’s brief turbulence. The VIX shot up, though far from the wild updraft spike we witnessed on August 5. And it’s not just AI or broader equities taking a hit—JPY is soaking up a vast safe-haven bid as risk betas like AUD/JPY took a nose dive into the plunge pool overnight.

And oh boy, if we get another weak NFP report that nudges the unemployment rate higher, things could get downright eerie. The unexpectedly harsh revision to payroll data for the 12 months ending in March has only stoked the flames, making this jobs report even more make or break.

But here’s the twist: a 50 basis point cut might not be the market's best friend if it shows up alongside signs of labour market weakness. In that scenario, those cuts could be viewed less as a soft landing cushion and more as a last-ditch effort to steer clear of a full-blown economic crash.

OIL MARKETS

The crude oil markets are caught in a perfect storm, echoing the broader anxiety sweeping global financial markets. Concerns over global economic growth—amplified by disappointing Chinese manufacturing data—are fueling doubts about future oil demand. Geopolitical shifts shaking up supply dynamics further complicate this.

The anticipated return of Libyan oil to the market after a period offline introduces a substantial supply boost just as demand fears are dragging prices down. OPEC+'s possible decision to move forward with output increases in October could flood an already jittery market with even more oil.

This collision of rising supply and waning demand creates a precarious scenario for oil prices, setting the stage for potential further declines if these trends persist. The market will likely stay on edge with heightened sensitivity, particularly to weaker economic data.

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