Stock markets had a volatile week, ending significantly lower after initially trying to rebound. The Nasdaq fell 5.8% for the week, its worst performance since November 2022, weighed down by concerns about the tech sector and AI darling Nvidia, whose shares dropped nearly 14%. The S&P 500 lost 4.25% and the Dow was also solidly in the red.

The main catalyst for the selloff was Friday's jobs report. While the unemployment rate ticked down to 4.2% as expected, the pace of job growth was much weaker than anticipated at 174,000 vs 225,000 expected. Moreover, there were significant downward revisions to prior months, painting a picture of a labour market cooling faster than realised. Over the last three months, job growth has been the slowest since mid-2020.

Bond yields moved lower on the weak jobs data, with 10-year Treasury yields shedding 28 basis points over the month to 3.71%. Shorter-dated yields fell even more as markets debated a possible 50 bp rate cut from the Fed in September. Currently, 36 basis points of easing is priced in for this month. Influential Fed Governor Waller said he was open to more aggressive cuts if the data continues to deteriorate.

The U.S. dollar ended the week mixed. It surged against the Australian dollar, which slumped over 1% to a low of $0.666 on commodity weakness and concerns about China's economy. However, the greenback fell 0.8% against the Japanese yen. Oil prices retreated, with WTI crude dipping below $70/barrel, a 12-month low.

Earlier in the week, markets digested several second-tier economic reports. Job openings fell to a two-year low, weekly jobless claims improved slightly, and the services ISM was little changed. None materially altered the outlook ahead of Friday's payrolls report.

Overseas, China reported very weak inflation data, with PPI down 1.8% y/y and core CPI at just 0.3%, the lowest since before the pandemic, signalling persistent disinflationary pressures from overcapacity. Japan's GDP was revised down slightly to 0.7% q/q but the Economy Watchers survey improved, suggesting the recovery could remain intact.

The week ahead features critical U.S. CPI data and the first Presidential debate between Donald Trump and Kamala Harris. Central banks are also in focus with meetings by the European Central Bank and Bank of England. Markets remain on edge, vulnerable to signs of further economic slowdown but also, for now at least, seem apt to buy the dip when sentiment gets too negative. The medium-term path forward hinges on the interplay between growth, inflation, and monetary policy responses.  And of course, US politics…..