The US non-farm payrolls in August increased by just 22,000, below the expected 75,000. Canada saw a decrease in employment by 65,500, against expectations of a 10,000 increase.
In response, the Federal Reserve is considering a 25 basis points cut, with 90% chance of a cut at each of the remaining meetings this year. Meanwhile, Saudi Arabia proposes OPEC+ to accelerate the next oil production boost.
Market Movements
Market movements were noticeable; gold rose by $41 to a record high of $3,586. WTI crude oil fell by $1.49 to $61.99, and US 10-year yields decreased by 10.2 basis points to 4.07%. The S&P 500 decreased by 20 points to 6,481, with CHF leading the market and CAD lagging.
Both US and Canadian currencies weakened slightly, with the loonie underperforming. The market expects 47 basis points of easing in Canada and 131 basis points in the US over the next year.
Gold benefited from market forecasts of rate cuts, while equities saw mixed reactions. Initial optimism over rate cuts shifted to recession fears, though some late equity bids helped US indexes to finish higher for the week.
Given the shockingly weak August jobs reports from both the US and Canada, we see a clear path for central bank action. The market is now pricing in a 90% chance of a Federal Reserve rate cut at the September meeting, making bets on lower interest rates highly probable. We should be looking at derivatives that profit from falling yields, such as buying call options on Treasury bond ETFs like TLT or purchasing SOFR futures.
Rising Volatility
The equity market’s indecision, rallying on rate cut hopes before falling on recession fears, signals rising volatility. The CBOE Volatility Index (VIX) has already crept up from its summer lows near 13 to just over 19, showing growing market anxiety. This environment is ideal for long volatility strategies, such as buying VIX call options or using straddles on the S&P 500 to capitalize on a large move in either direction.
The Canadian dollar is facing a dual threat from the dismal domestic jobs data and falling crude oil prices. We view the loonie as the most vulnerable currency among the G10 and expect further weakness. Traders should consider buying put options on the Canadian dollar or establishing short positions against safe-haven currencies like the Swiss franc.
Gold’s surge to a new record high above $3,500 is a direct result of falling real yields and a flight to safety. This powerful trend is supported by both imminent rate cuts and underlying economic fear, creating a strong tailwind for the metal. We believe buying call options on gold futures (GC) or related ETFs remains the most straightforward way to ride this momentum.
Crude oil is flashing warning signs, as fears of a recession-driven demand slowdown are now outweighing supply-side stories. This negative sentiment is amplified by reports that OPEC+ may increase production, creating a bearish outlook for the coming weeks. We see an opportunity in buying put options on WTI futures to hedge against or profit from a further slide in energy prices.
This economic slowdown is not a surprise, as we have seen key indicators like the ISM Manufacturing PMI hovering below the contractionary 50 mark for several months in 2025. With the latest Core PCE inflation reading from July 2025 holding at a manageable 2.7%, the Fed has a clear green light to cut rates. We must remember, however, that the initial rate cuts in past cycles, such as in 2007, did not prevent an economic downturn, a crucial lesson for today.
