Equities Suffer Worst Setback Since August 5th Panic

September commences with a risk-off session. Weak US manufacturing data and Nvidia’s continued decline powered a rally for Treasurys and a broader equity sell-off. Swap rates and Treasury yields dropped 5-8bps on increased demand for safe haven assets. Meanwhile, the VIX “fear gauge” index spiked over 33% to ~21.0 while the NASDAQ led major stock indices with a 3.26% decline. Attention is largely geared toward this week’s labor figures, including tomorrow’s JOLTS job openings and (moreso) Friday’s nonfarm payrolls and unemployment rate data.

Manufacturing sector contracts for 5th-straight month. ISM manufacturing data released today showed the manufacturing sector contracted more quickly than expected, with the index at 47.2 vs. surveyed estimates of a 47.5 print. The sector has been in contraction since April, and this represents the 2nd lowest index reading since last November. Chair of the ISM Manufacturing survey committee Timothy Fiore said, “Demand continues to be weak, output declined, and inputs stayed accommodative… companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and election uncertainty.”

Swiss National Bank (SNB) is likely to cut policy rates again as inflation slows. The SNB was the first major central bank to enact monetary easing, having already cut rates twice this year. A third is likely to follow at the end of September, especially after overnight figures showed that the consumer price index (CPI) slowed to 1.1% year-over-year in August from 1.3%. Month-over-month CPI was 0.0%, the third consecutive print with flat inflation or outright deflation (-0.2% in July). Futures markets currently have a 25bp rate cut priced in both this month and in December.