The decision will be 'heavily influenced' by August inflation data, due next week. It’s just that with the recent spike in energy prices, there is a chance that the data says 'we need a hike'. US crude is again up by nearly 3% this morning, while US diesel prices hit a record high yesterday. The wars in the Middle East and Ukraine continue, while extreme weather events also help pushing crop prices higher.

Overall, investors’ focus has clearly shifted from strong earnings earlier this summer to rising crude oil prices into September. The latter boosted inflation expectations and pushed bond yields higher. Exploding US – and other developed markets’ – debt levels added fuel to the fire, especially hitting the longer end of the yield curve. Uncertainty around Fed independence – and whether Kevin Warsh will do what he must to keep the US economy in a sweet inflation/jobs equilibrium or rather soothe the White House’s nerves with lower interest rates – also rubbed salt into the wound.

Global yields have been slightly lower over the past few sessions, driven there by a slight retreat in oil prices and softer Fed expectations. But oil is up again, and given that bringing oil prices sustainably lower will take time – if there is no rapid resolution in the Middle East – the best option for the Fed doves to return, and pull yields more significantly lower in the US, is soft jobs data.

Because remember, Fed Chair Kevin Warsh said in his Jackson Hole speech a week ago that the US jobs market remains stable-ish, while price pressures are rising – keeping the door open to further policy tightening. But following the same logic, if jobs data comes in weak – weaker than expected – the Fed could justify waiting longer before hiking rates.

US jobs day!

Today, the US official jobs data is expected to print 58K new nonfarm job additions for August. Last month, the jobs data surprised with 23K job losses, remember, and according to the latest BLS release, the US economy printed a net increase of +316K jobs from July 2025 to July 2026. Divide by 12, and that makes around 26.3K job additions per month over the past 12 months.

That’s not brilliant. In fact, if we dive deeper, sustained payroll growth below roughly 50K per month – particularly on a 3- or 6-month moving average – would historically look like a labour market approaching “stall speed”. Looking at the numbers today, the last 12-month average is around 26K, and the last 6-month average is around 44K. We are below that 50K mark.

Now, we can argue that breakeven job growth has fallen because US population and labour-force growth have slowed (ageing, tighter immigration policies). As a result, the US economy may now need substantially fewer new jobs each month to keep unemployment stable than the old 100–150K rule of thumb. But the latest numbers still look a bit weak.

So the reasoning is that if the US jobs data comes in soft – both in terms of job additions and, ideally, wage growth as well – the Fed doves could gain some more ground, pulling yields and the dollar lower while supporting equity valuations.

If, however, the US jobs data comes in strong – and that’s a possibility; over the past six months, we have seen prints of around 170–180K job additions – the market focus, and fear (!), will remain on inflation. That could keep yields rising and weigh on equity valuations.

Then, next week’s inflation data might have the last word. (I say might...)

As for the US dollar, its performance is relative to other currencies. Hawkish central bank expectations elsewhere could prevent the US dollar from rallying too aggressively. But looking at current expectations, the Fed still has more room to readjust towards a more hawkish policy outlook than, say, the European Central Bank (ECB), the Reserve Bank of Australia (RBA) or even the Bank of Japan (BoJ).

Speaking of the latter, this week a BoJ Board member suggested that every BoJ meeting should be live for a potential rate hike, and that the BoJ should consider consecutive rate hikes to normalise its policy rates in accordance with its new “inflationary” reality. Whether the BoJ will do that remains to be seen. But if USDJPY’s latest pullback is not accompanied by swift BoJ action, the latest advance in the Japanese yen could melt like snow under the sun – as has been the case following past interventions.

Not all indices are created equal

What’s certain, however, is that rising energy prices don’t impact all currencies, indices and sectors in the same way. Net energy exporters, like the US and Canada, are less vulnerable to higher energy prices than net energy importers like Europe. The energy-heavy FTSE 100 emerges, again, as a smart diversification versus the Stoxx 600, which is more cyclical and therefore more sensitive to energy prices and interest rates.

US technology-heavy indices, on the other hand, are increasingly sensitive to rising borrowing costs. Massive AI spending is absorbing an increasingly large share of Big Tech companies’ cash flows and pushing some towards additional financing through stock and bond issuance. AI enablers, on the other hand, have amassed much of this cash and could have a certain shield against rising borrowing costs. But at the end of the day, the fact that their clients are facing higher borrowing costs – and could eventually slow spending – is a mounting risk.

There is no magic resolution. What would really help investors regain their mojo today is softer yields. For that, we ideally need inflationary pressures to soften. If not, soft jobs would do too — even if that’s the cure nobody wants.