Market Watch – Sept. 5, 2025

In the U.S., early strength driven by activist investor news and tech sector momentum gave way to volatility as ISM manufacturing data showed persistent contraction, and ADP employment figures revealed slowing job creation. By Friday, weaker-than-expected nonfarm payrolls shifted sentiment decisively toward rate cut expectations, lifting equities. Canadian markets faced pressure from deteriorating labour data, with rising unemployment and broad sectoral weakness reinforcing expectations for a rate cut. In Europe, sticky inflation and uneven PMI readings kept monetary policy uncertainty elevated, though easing rate expectations and stronger construction data supported modest gains. Chinese markets were initially buoyed by signs of stabilization in the manufacturing and services sectors, alongside optimism from trade dialogues with the U.S., though gains reversed midweek as regulators signaled curbs on speculative activity.

Highlights:

U.S. equities returned -0.27%¹ as weak ISM manufacturing and ADP employment data pointed to slowing momentum early in the week and raised concerns about the labour market, but rate cut expectations surged after soft nonfarm payrolls lifted tech stocks and supported broader gains by week’s end.
Canadian equities were up 2.24%² despite facing headwinds from deteriorating labour market data, with rising unemployment and broad sectoral job losses reinforcing expectations for a rate cut by the Bank of Canada at its upcoming policy meeting.
European stocks rose 0.30%³ despite sticky inflation and uneven PMI data, as easing rate expectations and stronger construction activity helped offset concerns over sluggish services inflation and external trade risks.
Emerging markets were up 0.19%⁴ as regulators signaled tighter controls on speculative trading, overshadowing early optimism from stabilizing PMI data and constructive trade dialogue with the U.S.

Global bond rally builds as labour data and policy signals align

Fixed income markets rallied as soft labour data—including ADP and nonfarm payrolls—reinforced expectations for a September rate cut, with Fed officials signaling openness to multiple cuts amid cooling wage pressures and slowing job creation. Canadian yields followed suit, declining after a second consecutive monthly drop in employment and rising unemployment, which strengthened the case for Bank of Canada easing. In Europe, sticky inflation and uneven PMI data initially pressured rates higher, but dovish signals and weak producer price data later drove a broad bond rally, especially at the long end. In China and emerging markets, fixed income sentiment was mixed as modest PMI improvements were offset by regulatory tightening and geopolitical uncertainty, limiting the scope for sustained yield compression.

Highlights:

The 2- and 10-year U.S. Treasury yields were both down 4 basis points (bps). In Canada, the 2- and 10-year yields were down 7 bps and 8 bps, respectively. Bond yields and prices move inversely to one another.
The market is now pricing in a full 25 bps rate cut by the Fed later this month with a slight chance of a 50 bps reduction. The U.S. central bank is likely to focus on the employment mandate for the rest of the year amid signs of labour market weakness and somewhat contained inflation expectations.
Credit spreads are traded wider late in the week, high yield in particular, mostly as a function of rates moving lower. There could be some weakness in credit for the rest of the month as the market begins to price in potential weakness in economic activity and the impact on businesses.

Weekly dashboard

Canada’s labour market weakens further in August as unemployment climbs

Canada’s labour market showed signs of continued softening in August, with employment falling for a second consecutive month and the unemployment rate rising to its highest level since 2016, excluding pandemic-related distortions. The decline was concentrated in part-time work, while wage growth remained steady. Broader indicators of labour underutilization also ticked higher, suggesting slack is building across age groups and sectors.

Highlights:

StatCan reported a net employment decline of 66,000 jobs in August, led by a 60,000 drop in part-time positions. This marks the second consecutive monthly decline and reflects weakness in accommodation and food services, construction, and public administration.
The unemployment rate rose to 7.1%, up 0.2 percentage points from July, with core-aged men and women (25–54 years) seeing the largest increases. The labour force participation rate held steady at 65.4%.
Self-employment fell by 43,000 (-1.6%) in August, marking the third decline in four months. This trend has offset gains recorded in late 2024 and early 2025, and reflects broader weakness in entrepreneurial activity amid uncertain economic conditions.

U.S. job growth remains subdued as labour market shows signs of cooling

Despite coming well under expectations, the U.S. labour market remained broadly stable in August, with nonfarm payrolls posting a modest gain and the unemployment rate holding near recent highs. While healthcare hiring continued to support job creation, losses in government and resource sectors offset some of the gains. Participation and employment ratios were unchanged, suggesting a steady but cooling labour market backdrop.

Highlights:

Nonfarm payrolls rose by 22,000 in August, reflecting minimal net job creation for the fourth consecutive month. Healthcare added 31,000 jobs, while federal government employment declined by 15,000 and mining, quarrying, and oil and gas extraction shed 6,000 positions.
The unemployment rate increased from 4.2% to 4.3%, with 7.4 million Americans unemployed. Long-term unemployment remained elevated at 1.9 million, accounting for 25.7% of the total unemployed.
Labour force participation was unchanged at 62.3%, while the employment-population ratio held at 59.6%. Both metrics have declined by 0.4 percentage points over the past year, indicating a gradual erosion in labour market engagement.

Eurozone private sector sluggish in August as service growth falters

The Eurozone economy pointed to a modest expansion in August, with the composite PMI barely above the contraction threshold. While manufacturing output continued to expand modestly, the services sector lost momentum, pointing to broad-based weakness in demand. Inflationary pressures ticked higher, and business confidence remains fragile.

Highlights:

The HCOB Eurozone Composite PMI Output Index rose slightly to 51.0 in August, up from 50.9 in July. This marks the highest reading in 15 months, but still reflects only marginal growth across the private sector.
Manufacturing activity improved, with the Manufacturing PMI Output Index climbing to 50.7 — its highest level in three years. Factory output growth reached its highest level since March 2022, while new orders — a key indicator of underlying demand — expanded at their fastest pace in nearly three and a half years.
Services sector growth slowed, with the Services PMI falling to 50.5 from the four-month high of 51.0 in July. Input costs and output prices rose at sharper rates, suggesting renewed inflationary pressure in consumer-facing industries.

^{1 S&P 500 Index USD}
^{2 S&P/TSX Composite Index USD}
^{3 Bloomberg Developed Markets ex N. America Large & Mid Cap Price Return Index USD}
^{4 Bloomberg EM Large & Mid Cap Price Return Index USD}

by Scotia Wealth Management - The Zukiwsky Group

Market Watch – Sept. 5, 2025

Week in review

Rate cut momentum lifts U.S. tech while global growth signals diverge

Global bond rally builds as labour data and policy signals align

Weekly dashboard

Canada’s labour market weakens further in August as unemployment climbs

U.S. job growth remains subdued as labour market shows signs of cooling

Eurozone private sector sluggish in August as service growth falters

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