Global equity markets stayed volatile last week. The three major US indices closed roughly flat, though Nvidia's acquisition of Hugging Face lifted the Philadelphia Semiconductor Index 2.32%. Bank of Japan rate-hike expectations pushed the yen toward 155, but Friday's much stronger-than-expected payrolls limited dollar weakness. The 10-year Treasury yield briefly spiked to 4.8% and WTI reclaimed $90.
This week’s WEFC covers three themes: a payrolls rebound, rising bond yields, and AI’s shift from hype to cash flow as bottlenecks move downstream to packaging, memory, and power.
This Week's WEFC Preview
Weekly Market Roundup: Volatility Amid Geopolitics, Policy Shifts & Strong US Data
- The three major US indices closed roughly flat while semis outperformed. Nvidia's acquisition of the open-source platform Hugging Face lifted the Philadelphia Semiconductor Index by 2.32%. European and Asian markets showed no clear directional trend, mostly consolidating around unchanged levels.
- Heightened Bank of Japan rate-hike expectations pushed the yen toward 155. That weighed on the US dollar index, though Friday's much stronger-than-expected non-farm payrolls limited further dollar weakness. The 10-year Treasury yield briefly spiked to 4.8%.
- WTI crude moved back above $90 a barrel on Middle East uncertainty. Gold fluctuated with shifting Fed rate-hike expectations, rebounding after Waller's dovish remarks on Thursday before giving back gains on Friday.
- Energy and the yen led cross-asset performance. WTI (+7.38%) and Brent (+6.93%) topped commodities while wheat fell 5.35%; the yen gained 2.26% against a 0.27% decline in the dollar index. Utilities (+1.94%) led S&P sectors and consumer discretionary (-1.41%) lagged. Performance covers Monday, August 31 to Sunday, September 6.
▌Related Charts:Forex market · Commodity market · Bond market
Payrolls' Roll: August Rebound Puts the September Decision on Core CPI
- August nonfarm payrolls rose 162K, more than double the revised 21K prior print. That was well above the 56K consensus estimate, lifting the three-month average to 70K.
- Last month's largest drags reversed. Government employment returned to growth at 35K, while World Cup-distorted leisure/hospitality (62K) and retail (1K) also normalized back into positive territory.
- Unemployment held at 4.1% as participation rose to 61.6% from 61.4%. The labor force grew 683K and household employment rose 569K, matching consensus on the headline rate.
- Average hourly earnings growth slowed to 3.1% year-over-year from 3.2%, the softest reading of the current cycle.
- Core CPI is now the decisive input for September. Fed Governor Waller stated on September 3 that an in-line print would support holding rates steady, while an upside surprise could justify a hike. The Cleveland Fed's nowcast points to core CPI holding at 0.2% month-over-month, bringing the year-over-year rate down to 2.4% from 2.5% and supporting a high probability of a hold.
▌Related Charts: US - Nonfarm Payrolls (Monthly Change, Cumulative Revisions of Past 2 Months)· US - Nonfarm Payrolls by Sector (Monthly Change) · US - Labor Supply & Demand vs. Unemployment Rate · US - Hourly Wage Growth (YoY)
Deeper Debts: No Credible Consolidation Path, So Growth Has to Do the Work
- The FY2025 deficit fell to $1.78tn from $1.83tn on record tariff revenue. Tariff receipts reached $195bn versus $118bn prior, a gain of over 50%, as the effective tariff rate rose from roughly 2.4% in early 2025 to about 11%, pulling the deficit to 5.9% of GDP from 6.3%.
- The decline stops short of a trend reversal. FY2026's cumulative deficit through July already exceeds $1.8tn, surpassing the same period last year. CBO, OMB and primary dealer median forecasts point to deficits above $2tn within three years, and IMF projections hold the US near 7% of GDP through 2030.
- Issuance is shifting to the front end. The 3-month bill yield sits at 3.9% with money market fund assets approaching $8tn, and bills now make up 22% of outstanding Treasury debt versus roughly 15% pre-pandemic. Treasury's August refunding language shifted from assessing "increases" to "changes" in coupon auction sizes.
- The long end is repricing on term premium. The 10-year broke above 4.8% and the 30-year above 5.2% this week, a 2025 high, driven by investors demanding greater compensation for holding duration rather than by policy rate expectations.
- With the deficit path fixed, growth is the remaining lever. Goldman Sachs estimates AI adoption adds 1.5pp to annual GDP growth, and CBO puts each 1pp of labor productivity growth at roughly $3.17tn off the 10-year cumulative deficit. Equities stay favored over bonds; within fixed income, short-duration Treasuries carry less volatility risk than the long end.
Firsthand From SEMICON: AI Monetization Turns to Cash Flow as the Bottleneck Moves Downstream
- Inference cost per token fell 80–90% over the past four years while total token consumption rose 10–15x. Every 1 GW of AI infrastructure now generates approximately $17bn in annual cloud provider revenue, with frontier labs selling tokens directly to end users capable of $30bn per GW versus $10bn a year ago.
- Combined capex across the four major CSPs is tracking toward $800bn this year and above $1tn by 2027. Nine major technology firms, including Microsoft, Google, Amazon, Meta, Oracle, Nvidia, Broadcom, AMD and SpaceX, now carry $3tn in off-balance-sheet purchase commitments and unactivated leases.
- Balance sheets still have room to fund it. Average net debt to equity across these hyperscalers stands at approximately 38%, a level JP Morgan characterizes as financially healthy despite rising CDS spreads, and it estimates $6–7tn in available capital over the next three to four years.
- AI compute demand is doubling every 4 to 5 months, shifting supply chain control to the back end. Packaging has moved from 2.5D horizontal arrangement to 3D vertical stacking, with yield constraints centred on warpage and immature CoWoS/CoPoS automation. TSMC and ASE retain platform and standards control, while ABF substrate suppliers face tightening supply and pricing power.
- HBM now accounts for 70 to 75% of total AI chip cost as the bottleneck moves to memory and power. Rack power is heading from hundreds of kilowatts toward 1 megawatt, pushing architecture from 54V toward 800V high-voltage DC. Bloomberg projects data center electricity consumption rising 4,000 TWh between 2025 and 2050, while interconnection queues stay slow — watch state-level permitting, including Texas, through the 2026 midterms.
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