Finance Weekly | Rate-Hike Bets Surge as Major Central Banks Turn Hawkish

This week's global markets were dominated by a synchronized hawkish turn from major central banks. The U.S. added 162,000 jobs in August, far above forecasts, lifting the odds of a September Fed rate hike to 60%; new Fed Chair Kevin Warsh left the door open to increases in his first Jackson Hole speech. The Bank of Canada held rates for a seventh straight meeting but struck a hawkish tone, while the ECB is expected to hike next week. China's central bank rolled over its reverse-repo facility to keep liquidity ample, inbound tourism spending rose 27.8%, and South Korea's exports hit a record. In gold markets, the Dutch central bank moved 86 tonnes of reserves from North America to London.

1. U.S. Adds 162,000 Jobs in August, September Rate-Hike Odds Hit 60%

Source: Al Jazeera

On Friday, September 4, the U.S. Department of Labor's Bureau of Labor Statistics released the August jobs report showing 162,000 nonfarm payrolls added, with the unemployment rate unchanged. The figure was well above forecasts — Reuters, the Wall Street Journal and Bloomberg had projected 56,000, 53,000 and 55,000 respectively, following a decline of 23,000 in July.

Gains were concentrated in local government education (about 42,000, as the 2026-27 school year began), food services (59,000), construction (22,000) and healthcare (12,000). The information sector shed 23,000 jobs, including layoffs at Scripps TV and Zillow, while financial activities lost 12,000. The official data contrasted sharply with the ADP private-payroll reading of just 38,000. Tuesday's JOLTS report showed 7.3 million openings in July, up from 7.2 million the prior month.

The strong data lifted rate-hike bets. CME Group's FedWatch put the odds of a 25-basis-point hike to 3.75%-4.00% in September at 60%, up from 49% on Thursday. President Donald Trump posted on Truth Social urging rate cuts and threatened to cut off trade with deficit nations. Despite the strong report, markets fell — the Nasdaq dropped 0.2%, the Dow 0.5% and the S&P 500 0.3%.

Looking ahead, the quality of the gains — heavily dependent on back-to-school and food-services hiring — will be a key consideration at the Fed's September meeting. If inflation data stay firm, hawkish expectations could strengthen further.

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2. Fed Chair Warsh Turns Hawkish at Jackson Hole, Opens Door to Hikes

Source: Yahoo Finance

Kevin Warsh, who was sworn in as Federal Reserve Chair on May 22, succeeded Jerome Powell at the helm of the central bank. In his three-plus months on the job, he has shelved forward guidance from FOMC statements and commissioned five task forces to aid monetary-policy decision-making. This week, markets focused on his first annual speech at the Jackson Hole economic symposium.

In the August 28 address, Warsh delivered a sentence with the power to shift market expectations: "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed." The qualifier "at sufficient speed" moves the Fed's focus from month-over-month declines to demanding that prices moderate to acceptable levels quickly. That means the door to rate hikes remains open even if inflation starts to fall. Fed officials have confirmed inflation has now been above the 2% long-term target for 65 months.

Warsh's stance puts a historically expensive, AI-driven stock market on notice. The AI infrastructure build-out has been the top catalyst of this bull market, and that expansion is partly financed with debt; if borrowing costs rise and companies slow data-center expansion, stretched AI valuations could face a rerating. The article notes that while Iran-war-driven inflation is entrenched in the U.S. economy, delivering the chair's promise "at sufficient speed" threatens to upend one of the strongest bull markets on record.

Looking ahead, Warsh's hawkish focus on speed, combined with inflation pressure from geopolitical conflict, has turned a September hike from a fringe option into the market's base case, rewriting how global risk assets are priced.

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3. Fed Warns Stock Risk Premium Near Dot-Com-Bubble Lows

Source: Yahoo Finance

The S&P 500 and Nasdaq have added 13% and 14% respectively this year, driven by strong corporate earnings, particularly among technology companies. But data in the Fed's July meeting minutes delivered a warning for investors: the S&P 500's equity risk premium is near its lowest level since the dot-com bubble.

The equity risk premium measures the extra return investors expect from stocks versus risk-free assets such as U.S. Treasuries — the index's forward earnings yield minus the real 10-year Treasury yield. The July minutes stated: "Asset valuation pressures were elevated... the equity premium was at a level that has only been lower in recent history during the dot-com bubble." More strikingly, the S&P 500 has held an equity risk premium below 2.5% for five straight months — last seen in May 2002, after which the index fell 16% over the following year.

Inflation is still running hot: the PCE price index, the Fed's preferred gauge, rose 3.7% year over year in July, back to levels last seen in early 2023. The minutes attributed it to Trump's tariffs, energy prices tied to the Iran war, and AI demand. The Fed held rates steady in July, but three officials voted for a quarter-point hike, up from zero in June.

Markets now see hikes as inevitable: FedWatch shows the most likely path is a quarter-point hike in September 2026, then another in January 2027. Historically, after the first hike in a new tightening cycle, the S&P 500 and Nasdaq have fallen an average of 10% and 12% respectively over the next three months. Still, the article notes every past correction was eventually recovered, leaving opportunity for patient investors.

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4. China's Central Bank Rolls Over 500-Billion-Yuan Reverse Repo

Source: Eastmoney

On September 4, the People's Bank of China announced that, to keep banking-system liquidity ample, it will conduct a 500-billion-yuan, three-month outright reverse-repo operation on September 7. Because an instrument of the same size matures in September, this month's operation is an equal-amount rollover — after the central bank had increased the size by 200 billion yuan in each of the previous two months.

The shift was broadly in line with expectations. Wang Qing, chief macro analyst at Golden Credit Rating, noted that liquidity is currently loose, with DR001 hovering near 1.35% since early September, below the 1.40% policy rate. As a result, the central bank cut its seven-day reverse repos to a minimal 50 billion yuan on September 1 and suspended operations from September 2 to 4. Wang said the equal-amount rollover and the consecutive zero operations share the same logic — controlling injection in a loose-liquidity environment to guide market rates around the policy rate.

Notably, an 800-billion-yuan new-type policy financial tool has begun disbursing funds, with the first tranches landing in Zhejiang, Yunnan, Sichuan, Hubei and Xinjiang, targeting green and low-carbon, new-energy and new-materials sectors. Luo Zhiheng, chief economist at Yuekai Securities, estimated the tool's four features — larger scale, broader investment, better-targeted regions and greater support for private firms — could leverage roughly 10 trillion yuan in total project investment.

Wang expects macro policy to tilt further toward growth stabilization, with medium-term liquidity tools likely to be rolled over at larger sizes to support government bond issuance and bank lending; a reserve-requirement-ratio cut cannot be ruled out later, in which case outright reverse-repo volumes could shrink moderately.

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5. Dutch Central Bank Moves 86 Tonnes of Gold Out of North America

Source: Sina Finance

On September 2 (local time), the Dutch central bank announced it had moved about 86 tonnes of gold reserves from New York and Ottawa to London between March and August this year, to diversify risk. The news of this "global gold migration" quickly trended online.

The World Gold Council's 2026 Central Bank Gold Reserves Survey shows 57% of surveyed central banks store gold at the Bank of England, down from 64% in 2025, while the share storing gold at the New York Fed fell to 14% from 17%. Over the past 12 months, 9% of central banks increased domestic gold storage and 10% diversified their overseas storage locations — both notably higher than the 5% and 2% recorded in 2025.

Liang Yonghui, deputy secretary-general of the gold and silver branch of the China Nonferrous Metals Industry Association, said the Netherlands' move reflects three considerations: diversifying storage risk, improving the liquidity and controllability of gold in extreme scenarios, and following the global trend of central banks restructuring gold allocations. Notably, about 59 tonnes were completed by selling in New York and buying standard bars in London; more than 27 tonnes were shipped back to the Netherlands, while a similar amount of standard bars was transferred from the Netherlands to London. Fudan University professor Shen Guobing noted London's liquidity is far superior to Ottawa or New York, giving the Netherlands a "home + London" dual safety structure.

Analysts argue "gold repatriation" is no short-term phenomenon. After the 2022 Russia-Ukraine conflict froze part of Russia's overseas reserves, countries' traditional confidence in the safety of foreign reserve assets was shaken; France, Serbia and India have since adjusted their arrangements. Gold's strategic value is rising amid deglobalization and the weaponization of financial sanctions, with the global gold-storage landscape shifting from concentration in New York and London toward home-based storage with diversified overseas placement.

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6. China's Inbound Tourism Spending Jumps 27.8%

Source: People's Daily

China's inbound tourism and shopping remained hot this summer. Ministry of Commerce spokesperson Huang Ling said foreign visitors spent 263.6 billion yuan in China in the first seven months, up 27.8% year over year, while the number of foreign travellers processing departure-tax refunds more than tripled.

Europe's prolonged heat wave boosted demand for China's cooling products and "cooling getaways." Huang said "China Cool" went viral on overseas social platforms, with European countries making up 30% of the top 20 source markets for inbound travel this summer; bookings rose 275% and ticket orders more than 20-fold. Beyond major cities like Beijing, Shanghai and Guangzhou, lesser-known destinations also gained popularity — foreign visitors flying to Yining in Xinjiang and Nyingchi in Tibet grew more than sixfold. Hong Yong, a researcher at the Ministry of Commerce's research institute, attributed it to the expansion of visa-free policies, the resumption of international routes, and improved payment, transport, communications and scenic-area booking services.

The consumption mix is also upgrading: home-grown brands entered foreign tourists' must-buy lists, with customized "Shanghai-made" clothing, jewelry, watches and eyewear drawing over 50% foreign buyers; foldable phones, AI glasses and smart bands have become new favorites. In Beijing, inbound tourists reached 5.48 million last year with tourism spending of 50.56 billion yuan, both up about 40% year over year, and the city has more than 1,500 departure-tax-refund stores. The 2.0 version of the departure-tax-refund policy took effect July 1, making refunds more convenient for foreign travellers.

Hong said "Made in China" is shifting from price advantage to a combination of technology, design and personalization, and inbound tourism consumption could become an important channel for the internationalization of home-grown brands.

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7. Canada Unexpectedly Loses 42,000 Jobs, Questioning BoC's Hawkish Shift

Source: Financial Post

Statistics Canada reported Friday that the economy unexpectedly lost 42,000 jobs in August, with the unemployment rate holding at 6.4%. Economists had expected a modest gain of about 15,000. The data led economists to say the Bank of Canada — and Canadians generally — may have celebrated earlier positive growth reports too soon.

CIBC economist Andrew Grantham said the labour market cooled in August after a "hot" July, giving back more than half of the prior month's gains; the weakness was entirely concentrated in services, possibly reflecting some payback after the FIFA World Cup. Tony Stillo, director of Canada economics at Oxford Economics, said new U.S.-Canada tariffs, a flare-up in the trade war, the Iran conflict and a shrinking population are weighing on hiring, and he expects the central bank to stay on the sidelines for the rest of 2026 and most of 2027.

The data also pushed back against the Bank of Canada's hawkish shift this week. The central bank held its benchmark rate at 2.25% for a seventh consecutive meeting, but policymakers expressed greater concern over the inflation outlook. The weak jobs data left that hawkish stance looking premature. RSM Canada economist Tu Nguyen noted that some job losses may have occurred late in August, after the trade talks collapsed on August 21, and more could follow in September as U.S. tariffs hit selected Canadian imports.

Looking ahead, Canada faces a dilemma of a trade war plus elevated inflation: if the central bank stays hawkish on inflation while employment keeps weakening, its policy space will be squeezed.

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8. Canada-U.S. Trade War Escalates With 50% Tariffs on $28B in Exports

Source: CBC

As the Canada-U.S. trade war escalates, experts warn tariffs are unlikely to strengthen either economy and could leave consumers paying more. Robert Huish, a professor and associate dean of research at Dalhousie University, called tariffs an "economic weapon."

Trade talks between the two countries fell apart on August 21, with about $28 billion in Canadian exports to the U.S. hit with 50% tariffs, and the Trump administration has promised more tariffs in January. In response, Ottawa plans to bring in retaliatory tariffs on more than $27.6 billion worth of U.S. goods on September 8.

Huish explained the idea behind tariffs dates back to the 1600s: make imported goods more expensive, reduce demand for foreign products and encourage industry to move inside your own borders. "You impose a financial penalty on goods and products that come into your country. But this is really an ancient economic idea," he said, warning that tariffs ultimately land on consumers, shrinking the economy rather than strengthening it.

With Canada-U.S. trade tensions persisting, the "lose-lose" nature of tariffs is being repeatedly confirmed. For Canadian businesses heavily dependent on U.S. trade, even aggressive diversification cannot fully offset the shock of a shrinking American market. This geo-economic variable, together with the Bank of Canada's monetary policy and weak jobs data, forms a core risk for Canada's economy over the coming quarters.

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9. ECB Poised to Hike 25 bps as Energy Shock Lifts Inflation

Source: Greek City Times

In Europe, the European Central Bank is expected to raise its deposit facility rate by 25 basis points to 2.5% next Thursday, its second increase of 2026 after a similar hike in June. The key driver is the deadlock in the U.S.-Iran conflict, which continues to push energy prices higher.

Eurozone inflation has turned higher. The latest Eurostat figures showed inflation rose to 3.3% in August, from 2.9% in July, while core inflation, excluding energy and food, eased to 2.4%. ECB Executive Board member Isabel Schnabel signaled the coming increase first, warning inflation could stay above the 2% target for an extended period. Markets have priced it in: three-month Euribor stood near 2.65% mid-week, up from 2.46% in early August and 2.31% in early July.

Natural gas is Europe's most sensitive variable. The TTF benchmark topped 70 euros per megawatt-hour last week, its highest since late 2022 and more than double the 27 euros at the start of 2026. Oil traded near $95 a barrel. Meanwhile, EU gas storage is only about 65% full, well below the five-year average of 82%; if the Middle East conflict persists and winter is harsh, gas prices could stay elevated. Bundesbank president Joachim Nagel said markets price in a more than 95% probability of a September hike.

Looking ahead, the energy shock combined with sticky inflation is pushing the ECB to favor fighting inflation over supporting growth, leaving European households and businesses facing a fresh squeeze from both borrowing costs and energy prices.

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10. South Korea's Exports Hit Record, Led by Semiconductors

Source: Xinhua Finance

South Korea's customs agency reported that, as of 1 p.m. on September 5, the country's cumulative exports this year reached $709.4 billion, surpassing last year's full-year record of $709.3 billion.

President Lee Jae-myung relayed the customs chief's report on social media on September 5, saying that if the current solid export momentum continues, full-year exports are expected to reach $1 trillion around early December. In recent years, South Korea's exports reached $683.6 billion in 2022, dipped to $632.2 billion in 2023, rebounded to $683.6 billion in 2024 and hit $709.3 billion last year, a steadily rising trend.

Semiconductors are the core engine behind the record. According to Yonhap, South Korea's semiconductor exports reached $281.2 billion in the first eight months, up 169.6% year over year, accounting for 40.6% of total exports. Even amid a tough external environment including Middle East tensions, semiconductors kept South Korea's major export categories growing.

Looking ahead, with strong global demand for AI and high-end memory chips, South Korea's exports are increasingly driven by a single semiconductor pole. This means export volumes could keep setting records and move toward $1 trillion, but it also signals rising risk from dependence on a single industry — if external demand cools, export resilience will be tested.

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