Geopolitics and Commodities Briefly Take a Back Seat as Payrolls Loom

Abundant liquidity still underpins risk appetite, but widening economic and political cracks will test the market’s complacency.

Key Takeaways

• Commodities Watch the U.S. Dollar as Payrolls Loom: Overnight moves are modest, but the bounce in the DXY dollar index back to 99.0 is a critical pivot. Further strength in the dollar could cool the recent enthusiasm in emerging market assets and commodities, while metals remain prone to outsized swings due to positioning and index-rebalancing flows.

• Market Tape Signals Easy Financial Conditions Despite Household Strain: Record bond issuance and revived IPO ambitions point to abundant liquidity and constructive risk-taking. Washington’s MBS-buying rhetoric looks more supportive for related asset prices than for true housing affordability, leaving the bigger question of whether financial market optimism can survive the emerging cracks in household fundamentals.

• Productivity Boom Lifts Margins as Labor Share Sinks: U.S. productivity growth came in red-hot for the second quarter in a row, coming in at a +4.9% annual rate after an upwardly revised +4.1% jump in Q2. The major question is how much of this productivity spurt is noise and how much is a signal. In any event, what is clear is that this productivity bump has taken corporate profit margins to unprecedented levels, while at the same time dragging the labor share of the spoils down to historical lows.