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National balance sheet accounts data for Q2 on Thursday should show Canadian household net worth edged higher with a rebound in equity markets boosting financial asset values in a quiet week for Canadian data releases.

The S&P/TSX Composite Index climbed 7.8% following a weak Q1. However, part of this growth will likely be offset by declining property values. CREA’s MLS Home Price Index slipped by 1.2%, reversing gains from the previous quarter. The debt service ratio also likely increased modestly in Q2 amid growth in both household mortgage and non-mortgage loans.

Building permits data on Friday for July will also be watched for signs of resilience persisting in homebuilding nationally. But, permits have trended lower since February, and relative strength in national housing starts has reflected significant regional divergences with substantial underperformance in Ontario.

Last inflation reading before Fed decision

In the U.S., the focus will shift to the consumer price index report for August ahead of September’s FOMC meeting. It follows August employment numbers that largely confirmed labour markets are cooling. We forecast headline inflation to rise to 3% year-over-year, up from 2.7% in July, driven largely by higher gasoline prices (2% month-over-month), and food prices flagged by earlier increases in producer prices.

Core price growth excluding those components is also expected to remain elevated. We expect a 0.4% month-over-month increase that would be the largest since January, and second largest in almost two years. Trade-sensitive categories such as autos, household furnishings, and recreational goods will be watched closely for further evidence on whether the impact of tariffs is becoming more pronounced.

As we highlighted previously, the timing of tariffs passing through depends on factors such as inventory levels and the degree to which businesses absorb or pass on added costs. As inventory buffers continue to erode, we see the effects of tariffs increasingly reflected in producer prices with the potential to spill over into broader inflation metrics in the months ahead.

Monday, Sep 8, 2025

Tuesday, Sep 9, 2025

Wednesday, Sep 10, 2025

Thursday, Sep 11, 2025

Friday, Sep 12, 2025

Summary

The July CPI indicated that tariffs are not the only challenge to the Fed finishing its fight against inflation. Sticky services inflation alongside the rebound in goods prices has stymied the disinflationary trend of the past two years and pushed inflation further from the FOMC's target. We expect the firmer trend to continue in August and look for the core CPI to rise another 0.3%, keeping the year-over-year rate at 3.1%. A pickup in food and energy prices should support the headline CPI as well, which we forecast to rise 0.3% over the month and 2.9% relative to a year ago.

Further ahead, we suspect higher tariff rates are here to stay as the administration has authority to increase customs duties beyond the International Emergency Economic Powers Act currently under legal scrutiny. The spillovers from stronger goods inflation to services inflation should remain limited, however. Physical inputs are only a small portion of service firms' overall costs, the jobs market continues to soften and inflation expectations remain generally anchored. We expect the core CPI and PCE to run around a 3% annualized pace over the next six months or so before resuming its downward trend in the spring of next year.

Inflation Keeping the Fed in an Uncomfortable Place

The July CPI offered further evidence of the difficult road ahead for the Federal Reserve. Core inflation quickened with broad-based strength across goods and services, illustrating that tariffs are not the only forces keeping inflation sticky. We expect the firmer trend to continue in August and look for the core CPI to rise another 0.3%, keeping the year-over-year rate at 3.1% (Figure 1). A pickup in food and energy prices should support the headline CPI as well, which we forecast to rise 0.3% over the month and 2.9% relative to a year ago.

The burst of inventory front-running in the first quarter has allowed businesses to gradually adjust selling prices as they await to see where tariff rates ultimately land and avoid alienating consumers in the meantime. Yet, as stockpiles have dwindled, merchandise imports have started to rebound with U.S. firms seeing steep increases in customs' bills. Year-to-date, tariff revenues are up $94 billion, or about 150% from this point last year (Figure 2). The rising cost burden has been highlighted in earnings calls, our conversations with clients and within the Federal Reserve's latest Beige Book, and leads us to expect further strength in goods inflation in the months ahead.

We look for core goods prices to rise 0.25% in August, marginally stronger than last month's increase. New vehicle inflation, which has been tame, is poised to strengthen as a rebound in auto sales has helped to reduce inventory and the use of incentives has slowed. Price growth for other import-heavy items, such as apparel, recreational goods and communication hardware, should remain solid as well with another 0.3% increase. The further pickup in core goods prices is expected to push the year-over-year rate up to 1.5% in August, which would be its highest since May 2023.

Slower services inflation helped to counteract the upward pressure from stronger goods inflation over the first half of the year. We suspect the offset is now fading and look for core services prices to rise 0.30% in August. Travel-related service prices started to rebound in July, and we estimate another solid gain in August (+1.0%), led by lodging away from home. While spending on discretionary services remains generally weak, consumers' appetite for travel shows signs of rebounding with hotel occupancy and TSA screenings up again on a year-ago basis, suggestive of some stabilization in consumer demand.

Elsewhere, medical care services inflation appears due for a moderation after posting its largest increase in nearly three years in July. Forward-looking measures of rent growth suggest primary shelter inflation should run a touch under its 0.31% year-to-date average through the remainder of 2025, which will allow the year-over-year rate to gradually recede to 3.6% by December (Figure 3). Meantime, ongoing softening in the labor market is likely to limit upward pressure on wage growth, which we expect to help keep a lid on personal services inflation as well.

Looking further ahead, we suspect higher tariff rates are here to stay even if the use of the International Emergency Economic Powers Act (IEEPA) to institute "reciprocal" rates is not held up in court. There are other avenues the administration can pursue to levy tariffs on the legal grounds of national security (Section 232), unfair trade practices (Section 301) and serious trade deficits (Section 122). A shift from country-focused to product-focused duties will further complicate the supply chain adjustment process, but keep price pressures turned up.

We still expect spillovers into services to be limited, however (Figure 4). While services PMIs show a significant net share of services firms report higher input costs, physical inputs are a small portion of overall costs. More important for services inflation is the ongoing softening in labor conditions, which is helping to slow compensation growth. That said, real incomes continue to rise, preventing a collapse in demand and making additional disinflation in the service sector slow-going (Figure 5). We thus continue to expect the core CPI and PCE to run around a 3% annualized pace over the next six months or so before resuming its downward trend in the spring of next year.

• US CPI and PPI data to take centre stage ahead of Fed decision.
• ECB to likely hold rates, might signal long pause.
• OPEC decision and Chinese data to shape sentiment at start of week.
• Bond markets on alert for Treasury auctions and French budget vote.

US inflation data eyed before September FOMC

A 25-basis-point rate cut at the Fed’s September gathering is a near certainty. What there is less certainty about is the pace of cuts thereafter, while some market pundits are betting on a surprise 50-bps cut on September 17. In his keynote address at Jackson Hole, Fed Chair Jerome Powell indicated that the downside risks to employment could be becoming greater than the upside risks to inflation, warranting a shift in the policy stance.

However, whilst the balance of risks is undoubtedly tilting, it’s not clear how fast the labour market is slowing and what the full scale of impact of the higher tariffs will be on prices. So, the picture formed over the next few months from the incoming employment and inflation reports will be crucial for how quickly the Fed removes policy restriction.

For the September meeting, both Wednesday’s producer price index (PPI) and Thursday’s consumer price (CPI) index will be important in influencing the new dot plot, even if policymakers don’t add too much weight on them for the decision itself.

PPI, which measures the price of goods leaving factories, is considered to be somewhat more forward looking than CPI. Hence, as seen for the July numbers, if there’s another bigger-than-expected increase in August PPI, investors could pare back some of their more dovish expectations for Fed rate cuts.

For now, however, the tariff effect on goods prices appears to be modest, and potentially a bigger headache for the Fed is the recent pickup in services inflation. According to the Cleveland Fed’s Nowcast model, headline CPI is estimated to have edged up 0.1 percentage points to 2.8% y/y in August, while core CPI likely stayed unchanged at 3.1% y/y.

Also on investors’ radar is the preliminary consumer sentiment survey by the University of Michigan on Friday. Consumer inflation expectations turned higher in the August survey, after falling sharply in the prior months. If they continue to rise in September, this would not be a very encouraging sign.

Should the overall evidence on inflation not be very supportive of rate cuts, this could again lead to a steepening of the US yield curve, whereby short-term yields decline on the expectation of lower rates soon but longer-term yields rise on worries that inflation will spiral out of control in the future.

Further pressuring long-term bonds recently are the concerns about unsustainable budget deficits, not just in the United States, but in several advanced economies such as Japan, France and the United Kingdom. The US 30-year yield briefly spiked to a one-and-a-half-month high in the past week amid a global bond rout. There could be further volatility over the coming week as the US Treasury is scheduled to auction three-, 10- and 30-year notes.

ECB set to stay on pause

The European Central Bank is widely anticipated to maintain its deposit rate at 2.0% on Thursday when it concludes its two-day monetary policy meeting. With inflation at or close to its 2.0% target since the spring, the ECB can afford to adopt a wait-and-see stance, especially now that the immediate threat of the trade war has dissipated following the EU-US trade deal.

Policymakers appear to be split on whether or not interest rates will need to be cut again. A couple of policymakers – Schnabel and Dolenc – have warned that the next move could be up, while others, such as Olli Rehn, think that inflation could surprise to the downside.

President Christine Lagarde will probably try to strike a neutral tone in her press conference and may refrain from commenting on future policy. However, any hints that the ECB could stay on hold for the rest of the year would probably be viewed as slightly hawkish by the markets, as it would validate the current expectations that a final rate cut may not come before the middle of next year.

Lagarde will also be likely quizzed about the recent spike in Eurozone bond yields amid the jitters about mounting national debt levels. Whilst these concerns have been lingering in the background for some time, they’ve been fuelled lately by the increased political risks in France and Japan, and the UK government’s reluctance to carry out meaningful spending reforms.

Is France headed for a new political crisis?

For now, there doesn’t seem to be much danger of contagion beyond France as far as the Eurozone is concerned, and the direct hit on the euro has been minimal. However, it may not stay that way if the French government loses a confidence vote in parliament on Monday. Lawmakers will decide if they want to approve Prime Minister Francois Bayrou’s budget for 2026, which includes spending cuts of almost $44 billion.

Rejecting it could lead to a snap election, raising the risk that the next government won’t be as tough tackling the deficit, which stood at 5.8% of GDP in 2024. Over the past year, France’s 10-year yield spread with German bunds has widened to above those of Spain and Greece and is approaching Italy’s. A fresh political crisis runs the risk of pushing the spread even higher and sparking a selloff in the euro.

Pound vulnerable to worsening debt problem

As for the UK’s debt woes, the government has set November 26 as the date of the Autumn Budget, which is later than usual. This suggests Chancellor Rachel Reeves needs more time to prepare the budget as she scrambles to find alternative revenue sources and areas for spending reductions. The markets aren’t holding their breath, however, as even if Reeves manages to fill the fiscal hole that could potentially be as high as £50 billion, the gap would almost certainly be covered by higher taxation than lower spending, dampening growth in the economy.

The pound has been extremely choppy since late August and plunged last Tuesday when the yields on both the 10- and 30-year gilts soared, with the latter reaching the highest since 1998. Investors questioning the ability of governments to repay their debt could be much more damaging for sterling than the other currencies in the danger zone right now – the euro and yen – due to the UK’s twin deficit problem.

But with the bond market scare starting to ease, there could be more relief for the pound and gilts next week if Friday’s monthly GDP readings for July don’t disappoint.

OPEC+ may prefer lower prices

Oil futures have not been immune to the recent volatility, although prices are being driven for different reasons. Just as the receding hopes of a direct dialogue between Ukraine and Russia on ending the war and the prospect of more US sanctions on Russian oil exports have given prices a leg up, OPEC+ has delivered a fresh blow to the bulls.

OPEC+ sources have told Reuters that the cartel is not done raising output and will consider additional increases when member countries meet on Sunday to discuss quota levels.

OPEC producers have already unleashed 2.5 million barrels per day of new supply into the market this year but had hinted that September’s increase of 547,000 bpd was going to be the last. Should they proceed with another output hike for October rather than pause, this may signify that their goal isn’t just to balance the market but to also price out the competition from non-OPEC+ countries.

Oil prices could come under pressure if OPEC+ announces higher quotas or strongly signals it for one of the upcoming meetings.

Busy start to the week

Investors will also be watching Chinese trade figures first thing on Monday. So far, there’s been no notable impact from the trade war with the US on China’s exports, at least not according to the official data. However, now that the dust has started to settle, investors may not necessarily react much even if there’s a slowdown in August export growth, although a very weak print could spur some negative reaction.

More Chinese data will follow on Wednesday with the CPI and PPI readings for August.

Meanwhile, Japan will publish revised GDP estimates for the second quarter on Monday, and corporate goods prices for August might attract some attention on Thursday.

This week we published our updated macroeconomic projections, and what is perhaps the most interesting observation in this forecast round, is the fact that economic outlook is broadly unchanged from the June round, despite all the political noise. In fact, as growth in the euro area surprised to the upside during the first half of this year, we have upgraded our GDP projection for this year. In the US, the economy has also held up well. In China, while the most recent data releases have been to the weak side, we have still revised up our growth forecast on the back of solid macroeconomic performance in the first half of 2025. Read more on Nordic Outlook - Caution, not crisis, 3 September 2025.

Euro area data this week largely confirmed that the economy remains on track. Unemployment rate fell to 6.2% in July from 6.3% in June, and inflation remains close to the ECB's target. The flash estimate for headline inflation was at 2.1% in August, rising only marginally from 2.0% in July. Core inflation kept stable at 2.3%. These data prints will make the ECB's job rather easy next week. Considering the better-than-expected macro performance this year, reduced trade policy uncertainty and the overall shift towards a more hawkish stance among the Governing Council, we think the ECB will maintain rates unchanged next week, and markets agree. We see no more cuts in the horizon. Read more in ECB Preview: Confident in the current monetary policy stance, 5 September 2025.

UK markets had a volatile week after the Prime Minister Keir Starmer did a backroom cabinet reshuffle with the move having the potential to sideline Chancellor Reeves. Reeves represents the more conservative fiscal line within the party. Until now, we have expected Labour to tighten fiscal policy significantly at the next budget to meet the fiscal objectives. But now, the prospects do not look promising and further FX and bond market selloffs are likely ahead of the next budget.

Also in politics, on Monday, focus turns to the no-confidence vote on the French prime minister Bayrou. Bayrou and his government are expected to fall with both the far right and the left-wing parties vowing to vote against his minority administration. President Macron can then choose a new premier or call for a snap election. We expect continued uncertainty in French politics to persist and do not see any significant improvements in public finances realistic in the near-term.

On data front, next week's most important releases are all related to US inflation. The August PPI, due for release on Wednesday, will provide markets with the first sense of how tariff-related costs have continued to build. We wrote about the worrying details of the July release in RtM USD - The nature of inflation matters for the Fed, 19 August. Then on Thursday, the August CPI will illustrate how firms are passing through the cost increases to prices. Finally on Friday, the Fed will keep a close eye on the University of Michigan's preliminary September consumer sentiment survey. Also in the US, The BLS will publish its preliminary annual benchmark revision to NFP data on Tuesday. The revision affects data from April 2024 until March 2025. We expect another negative revision of -400k.

In China, focus is on exports data released early on Monday. Exports have been surprisingly robust in light of the headwinds from tariffs.

Full report in PDF. 

• We expect the ECB to leave the deposit rate unchanged at 2.00% on Thursday 11 September in line with consensus and market pricing.
• Lagarde to sound confident in the economic outlook and that the current monetary policy stance is appropriate, with staff projections likely to show little changes in the forecast for 2026-27.
• We expect Lagarde to be satisfied with current market pricing, aiming for a limited market reaction during the press conference.

We expect the ECB to keep the deposit rate unchanged at 2.00% at the September meeting, aligning with both market pricing and consensus expectations. The euro area economy has demonstrated resilience since the last ECB meeting, with rising PMIs and the manufacturing sector surpassing the 50-mark for the first time in three years. Meanwhile, unemployment continues to decline, and inflation has met the 2% target the past three months. Although the EU-US trade deal poses challenges for exporters, it also reduces downside risks to the economic outlook as the deal was consistent with ECB staff assumptions. These recent developments should bolster the ECB's confidence in their current monetary policy stance, a sentiment also reflected in recent remarks from Lagarde, Villeroy, Nagel and Kazaks.

The meeting will also feature a new set of staff projections, which we project to show higher growth and inflation in 2025 due to upside surprises in historical data, while the projections for 2026 and 2027 should only incorporate minor adjustments, see chart 1 and a detailed analysis in Reading the Markets EUR - Taking stock on excess liquidity; tactical curve steepener, September 4. Given the elevated tariff uncertainty surrounding the staff projections in June the limited number of changes in the new projections should also increase ECB's confidence in the outlook and thus their current monetary policy stance.

Markets are currently pricing in approximately 8bp worth of rate cuts for 2025 and another 8bp in the first half of 2026. Yet, we do not believe Lagarde has significant incentive to push market pricing in either direction during the press conference. Near-term growth risks remain tilted to the downside due to weak consumer confidence, which is constraining spending growth. Both Rehn and Simkus have highlighted that downside growth risks, combined with inflation falling short of the target, leaves the possibility of a rate cut in December on the table, with Simkus even having it as baseline scenario. Given these risks, we expect Lagarde to aim for a limited market reaction during the press conference.

Discussions about coming rate hikes from the ECB has started to emerge following the outlook for fiscal easing in Germany and increased defense spending in Europe. Heavyweight in the GC Schnabel has similarly stated that global rate hikes may start earlier than expected. We believe hikes in 2026 are premature due to inflation likely being below target by then and the German economy having sufficiently room to increase production without fueling inflation. Yet, we do acknowledge upside risks to the ECB profile at the end of 2026 but expect the policy rate to remain at 2.0% in 2025 and 2026 in our baseline.

The monthly release for US August jobs is at 22K vs 75K Expectations – Job growth is almost flat in the past 4 months!

The prior month came at 74K vs 110K expectations, but the biggest surprise was to the downside revisions which turned a 291K increase in two months to an-only 33K increase.

With the unemployment rate rising to 4.3%, there really is a decent slowdown happening in the US.

EDIT: As things are unfolding, the Market is pricing a 100% chance of a cut on September 17 and starting to price chances of a 50 bps (currently around 14%).

July Jobs revised at 79K (vs 74K) and June months actually at -12K vs 14K on the second revisions.

Canadian jobs also regressed quite largely at -65K vs 10K expectations, sending the Loonie down vs other majors.

The US Dollar is falling off, about to break support, equities are rallying but mixed : a more than 25 bps is starting to price but still has low probabilities of happening.

The data still shows an increase, albeit a very small one.

Check out the reactions to the US Dollar, a few FX Charts and Equities Futures.

Market reactions

Market overview, September 5, 2025 – Source: TradingView

It will be essential to log in after the Market open to see reactions when most volumes enter the market.

For now, it's USD and CAD down, risk-assets up but mixed, US Treasuries and Gold flying higher.

Current FX Picture after NFP

FX currency performance, September 5, 2025 – Source: Finviz

Look at the current pricing for FOMC Cuts for the rest of the year:

Cut Pricing for the rest of the year – Source: FEDWatch Tool

Markets just added about 17 bps of extra cut pricing to the rest of the year, which takes the 2.1 cuts to just about 3 cuts.

Let's see how this progresses and what influence it will have on Markets.

Safe Trades!

Non-farm employment increased by 22k in August, short of Bloomberg's consensus forecast of 75k, but nearly right on top of our forecast.

• Job gains for the prior two months were revised lower by a total of 21k.
• Over the past three months, non-farm payrolls averaged 29k jobs, well below the twelve-month average of 122k.

Private payrolls rose 38k – down from 77k reported in July – with most of the gains concentrated in health care & social assistance (+46.8k), leisure & hospitality (+28k) and retail trade (+10.5k). Meanwhile, goods producing industries (-25k), professional & business services (-17k) and government (-16k) all shed jobs on the month. The manufacturing sector has now released 42K workers since May, in a four-month string of steady monthly job losses.

In the household survey, the labor force (+436k) shot higher – following declines in each of the prior three months – eclipsing a smaller gain in civilian employment (+288k) and pushing the unemployment rate up to a new cyclical high of 4.3%. The labor force participation rate ticked up to 62.3% (from 62.2%).

Average hourly earnings (AHE) rose 0.3% month-on-month (m/m) – matching July's gain. On a twelve-month basis, AHE were up 3.7% (from 3.9% in June).

Key Implications

There's no escaping that the labor market is softening, and quickly. Once again, there was a low response rate in the August survey, at less than 60%. This suggests we could see further downward revisions in next month's release when the response rate typically returns to 90% or more. Further signs of weakness were also evident in the household survey, where measures of unemployment and underemployment each reached new cyclical highs of 4.3% and 8.1%, respectively.

Fed officials have become increasingly concerned about the downside risks to the labor market, and this morning's report will not assuage those fears. We maintained an out-of-consensus view since April that the Federal Reserve would need to deliver 75 basis points in rate-relief this year, and our conviction remains high that it will occur. Markets are increasingly moving to that view. As for that first step, Fed futures are fully priced for a September rate cut.

Canada's economy lost 66k jobs (-0.3% m/m) in August, adding to 41k jobs lost in July. The job losses concentrated in part-time positions (-60k), while full-time employment was little changed.

The unemployment rate rose to a new cycle high of 7.1%. The increase would have been worse were it not for 31k fewer workers in the labour force.

Job losses were seen across several industries. The biggest losses were in professional, scientific and technical services (-26k; -1.3%), transportation and warehousing (-23k; -2.1%), and manufacturing (-19k; -1.0%). However, construction employment bounced back (+17k; +1.1%) from July's decline (-22k; -1.3%).

Wage growth slowed to 3.2% in August, slightly lower than 3.3% in July.

Key Implications

July and August's job losses have now more than reversed June's outsized gain, and the Canadian economy has lost 39k jobs since January. The unemployment rate has risen half a percentage point over the same time period. It could be worse though, a slowdown in labour force growth is keeping the unemployment rate from rising too high, despite weak labour demand.

August's report is consistent with the Bank of Canada's characterization of "an excess supply of labour" in July's Monetary Policy Report. However, it hasn't yet prompted them to lower rates beyond the pre-emptive cuts made early in the year. Markets are now putting odds on the next cut coming in September. We have long expected two more cuts this year, with the inflation report on September 16th likely to help cement the timing of the next cut.

Daily Pivots: (S1) 147.91; (P) 148.35; (R1) 148.90; More...

Focus is back on 146.65 support as fall from 149.12 accelerates lower. Firm break there will suggest that decline from 150.90 is resuming through 146.20. MO re importantly, sustained trading below 55 D EMA will argue that rise from 139.87 has completed as a three-wave corrective move. Deeper fall should be seen to 142.66 support next. On the upside, though, above 149.12 will bring another bounce back towards 150.90.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). Decisive break of 61.8% retracement of 158.86 to 139.87 at 151.22 will argue that it has already completed with three waves at 139.87. Larger up trend might then be ready to resume through 161.94 high. In case the corrective pattern extends with another fall, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.