Today
Job growth in the U.S. was stronger than expected in August, with nonfarm payrolls increasing by 162,000 and prior months revised higher, while the unemployment rate held steady at 4.1%. The gain was led by rebounds in leisure and hospitality and government employment, alongside solid increases in construction and manufacturing. The report suggests the labour market remains resilient despite uncertainty surrounding the Iran war and continued inflation pressures. The stronger data, however, reinforced expectations that the Fed could raise interest rates at its next meeting, sending Treasury yields higher and equity futures lower following the release. Investors are now looking towards next week’s inflation report, which will be a key factor in determining whether policymakers ultimately move forward with another rate hike.
It was a different story closer to home, with Canada’s labour market weakening in August, with employment falling by -41,700, well below expectations for a 15,000 increase and reversing some of the strong job gains recorded in recent months. The unemployment rate held at a two-year low of 6.4%, with job losses concentrated in Ontario and Quebec and the public sector shedding another 20,000 positions, while manufacturing employment increased by 22,100. Wage pressures also moderated, with average hourly earnings for permanent employees rising 2.0% YoY, down from 3.0% in July and below the 2.9% expected by economists. Despite the poor numbers in August, the labour market is stronger than a year ago, with employment up 217,000, alongside a 3.3% annualized increase in Q2 GDP. Still, renewed U.S. tariffs and upcoming Canadian countermeasures have increased uncertainty around the recovery, with industries dependent on U.S. demand already seeing some layoffs.
Canada’s trade surplus narrowed in July as exports weakened (mostly to the U.S., which should come as no surprise), providing an early sign that trade could become a drag on Q3 economic growth. Exports to the U.S. fell 6.6%, reducing the U.S. share of Canadian exports to 66.3%, the lowest since 1997 outside the pandemic, while Canada’s bilateral surplus with the U.S. dropped to $5.9 bln from $10.3 bln in June. Overall exports declined 2.3%, led by weaker gold and energy shipments, while imports rose 2.2%, leaving Canada with a $769 million surplus versus expectations for $3.18 billion. On the bright side, exports to non-U.S. markets rose 7.4% to a record high for a third consecutive monthly increase, suggesting Canadian businesses are making some progress diversifying away from the U.S. market.
The U.S. trade deficit widened 24.4% in July to $88.6 bln, its largest since early 2025, as rising investment in AI drove an increase in technology-equipment imports. Imports rose 2.8%, led by an 11.4% jump in capital goods, the largest increase since 1993, with record growth in computer accessories alongside higher imports of computers, semiconductors, and telecommunications equipment, while exports declined 2.1% as shipments of petroleum products and gold fell. The deterioration highlights an unusual consequence of the AI investment boom with huge tech spending supporting domestic investment and economic activity, however, most of the required equipment is imported and therefore subtracts from measured GDP through net trade with estimates now suggesting that net exports could take away about 1.3% from Q3 growth.
The Japanese yen rose to a one-month high as investors unwound yen-funded carry trades and increased bets on a faster pace of BOJ tightening. The yen gained more than 2% yesterday after hawkish comments from officials, while markets fully priced a 25 bp hike at the meeting later this month and nearly three additional increases by next July. The shift is challenging the long-popular strategy of borrowing cheaply in yen to invest in higher-yielding assets, with the stronger currency also weighing on the Brazilian real, South African rand, and Mexican peso. Options activity reflected the change in positioning, with yen calls expiring this month trading at more than 2.5 times the volume of puts, while short positions suggest further unwinding is possible.
Some of the biggest holders of U.S. assets have little protection against a weaker U.S. dollar, leaving the USD vulnerable to additional selling if confidence in the currency deteriorates. Major institutional investors across markets including Canada, Japan, and Taiwan are hedging only about 41% of their foreign-currency exposure, the lowest level since at least 2015. Concerns are growing because the two factors that historically encouraged investors to remain unhedged (high hedging costs and the dollar’s safe-haven characteristics) are changing as global interest-rate differentials narrow and concerns grow over U.S. policy credibility and intervention in currency and Treasury markets. Even a 5% increase in hedge ratios across six major markets could generate roughly $230 billion of dollar-selling transactions. Japan is the biggest concern as additional BOJ rate hikes narrow the U.S.-Japan rate differential.
Parents are introducing their children to investing at an earlier age, driven both by regrets about starting too late themselves and concerns that younger generations will face a more challenging economic and employment environment. Financial firms are taking notice, responding with teen-focused brokerage and custodial accounts that combine investing access with parental oversight, educational tools and, in some cases, the ability for children to propose trades that parents approve. A recent survey found 73% of parents consider it very important for teenagers to learn about investing, while 59% of teens became aware of investing before age 13 compared with just 6% of their parents, highlighting the quick shift in financial education between generations. Educating teens is especially important, because if they don’t get the information from a trusted source, you can be sure that they’ll be getting it from TikTok. Experts warn that social media and gamified trading can encourage teenagers to treat investing like gambling, making guidance and discipline that much more important.
Diversion: Guess we know who the favourite is… 
