Fed Nears Rate Cut Cycle After –911k Jobs Adjustment, Markets Brace for Curve Steepening
Digital Asset Market: Bitcoin edged higher to $113,000 on Tuesday, recovering some recent losses as traders grew hopeful about imminent U.S. interest rate cuts, though optimism was tempered by concerns over the long-term viability of corporate Bitcoin accumulation strategies. While crypto prices bounced slightly after sharp early September declines, gains lagged behind equities and gold, and reactions to notable corporate Bitcoin buys remained lukewarm due to skepticism about volatile returns and increased market competition. Stablecoin issuer Circle also faced pressure from emerging rivals, while Gemini saw a boost with a $50 million investment from Nasdaq ahead of its IPO. Overall, analysts noted that despite Bitcoin reclaiming key technical levels, the rally lacks strong spot-market demand, leaving some investors cautious about its sustainability.
Macro Economics: For the first time in EU history, French 10-year government bond yields have surpassed those of Italy, reflecting mounting market concerns over France's growing budget deficit and political turmoil after Prime Minister François Bayrou lost a confidence vote and is expected to resign. This reversal, historically unthinkable since Italy was long viewed as fiscally riskier, highlights investor anxiety as whoever succeeds Bayrou will struggle to govern a divided parliament and pass a credible budget amid pessimistic deficit forecasts and rising debt-to-GDP ratios. Despite some technical factors exaggerating the yield gap, persistent fiscal and political uncertainty in France is prompting fears of further credit rating downgrades and even raising tail risks of a potential "Frexit" scenario, although such an outcome remains unlikely for now.
Equities: US stocks were mixed on Tuesday as investors reacted to sharply revised US jobs data showing the economy added 911,000 fewer jobs than previously thought over the last year, intensifying speculation about upcoming Federal Reserve interest-rate cuts. The Dow edged up 0.1 percent, while the S&P 500 slipped 0.1 percent and the Nasdaq dropped 0.2 percent after Monday's record highs. The weaker-than-expected jobs revision has heightened anticipation surrounding the Fed's policy decision next week, especially with crucial inflation data from the producer price index and consumer price index still to come this week. Meanwhile, Apple drew attention with its annual fall event, unveiling new devices amid questions about driving future sales, and shares of Tourmaline Bio and Nebius soared on deal news involving Novartis and Microsoft. Investors are also awaiting earnings reports from Oracle and GameStop after the market closes.
The Fed and US Treasury: Today’s labor data revisions by the Bureau of Labor Statistics showed that 911,000 jobs overestimated U.S. job growth from early 2024 through March 2025, the largest downward adjustment since records began in 2002, highlighting a much weaker labor market than previously understood and raising concerns about both the health of the economy and the quality of official data. These revisions, mostly affecting the private sector and key industries like leisure, hospitality, business services, and retail, mean income growth has been softer than thought, even before recent spikes in policy uncertainty and slowing economic activity. With monthly job gains throughout the summer falling well below the level needed to keep unemployment steady, markets have increasingly priced in easing by the Federal Reserve. Following further signs of labor market weakness, it is now seen as inevitable that the Fed will cut interest rates by 25 basis points at its September meeting, with a 50 basis point cut emerging as a distinct possibility if data continues to deteriorate. The year is likely to see a cumulative reduction of up to 75 basis points as the Fed responds to mounting evidence that the recovery in the labor market is stalling. Market strategists are cautioning that aggressive rate cuts may fuel a speculative stock rally rather than addressing the underlying shortage of workers.
Geopolitical: Israel escalates again, launching a dramatic strike targeting senior Hamas leaders in Doha, Qatar—a move that shocked the region, outraged Gulf states, and prompted the US Embassy in Doha to issue a shelter-in-place order for its citizens. The reported Israeli aerial attack, aimed at top Hamas figures including Khalil al-Hayya and Zaher Jabarin, has thrown hostage negotiations into turmoil, with families of Israeli captives expressing grave concern for their loved ones’ safety. Global markets immediately reacted, with oil prices spiking as geopolitical tensions and risks in the Gulf intensified following Israel’s unprecedented cross-border operation.
View from our desk
Bitcoin is searching for a driver
Bitcoin briefly pushed into the low $111k area before losing momentum, leaving the market without a clear directional catalyst. Corporate treasury accumulation that supported rallies in July and August has cooled, and recent buys from major holders have not sparked fresh demand or attracted significant new entrants. With spot liquidity thin and few large natural buyers present, the market needs a new source of sustained demand to break higher. We view the near term as range-bound and do not expect a material run-up in the coming days. The next clear push will likely come from renewed corporate or government treasury activity, which is absent for now.
Fed and rates
The Fed has shifted to easing, and our base case is three 25bp cuts at the September, October, and December meetings for a total of 75bp by year-end. Much of that path is already priced, so we expect limited movement at the long end as inflation expectations and term premia keep long yields relatively anchored even as short rates drift lower. The likely market response is a modest bull steepening concentrated in the 2s to 5s sector rather than a broad long bond rally. Overall, policy easing should support risk assets, but the impact will be incremental while positioning and carry dynamics remain key.
France's and Europe's sovereign stress is rising
For the first time in the euro era, French 10-year yields have traded above Italy’s, a clear sign that investors are penalizing Paris for growing deficits and political paralysis. Reported confidence vote defeats and the prospect of a prime ministerial resignation have amplified ratings risk and widened OAT to Bund spreads, forcing investors to demand higher premia across the region. These fiscal strains sit atop a weak growth backdrop, aging demographics, war-related costs, energy shocks, and competitiveness challenges, all of which compress policy room. Absent credible consolidation and structural reforms, fiscal funding costs will remain elevated and Europe’s recovery will look increasingly fragile.
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The 1Konto Team
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