Five Things You Need to Know to Start Your Day: Americas

Good morning. All eyes are on the US payrolls report due later today and what it means for the Federal Reserve’s expected interest-rate cut [View in browser]( [Bloomberg]( Good morning. All eyes are on the US payrolls report due later today and what it means for the Federal Reserve’s expected interest-rate cut this month. Meanwhile, the eurozone is gearing up for its own rate move and the reaction to Broadcom’s outlook shows it’s not just AI which matters. Here’s what you need to know — [Morwenna Coniam](. Want to receive this newsletter in Spanish? [Sign up to get the Five Things: Spanish Edition newsletter](. Preparing for payrolls US stock futures fell and the dollar weakened as traders prepared for jobs data that will be critical in determining the size of a Federal Reserve interest rate cut later this month. Nasdaq 100 contracts were down more than 1% while S&P 500 futures pointed to a fourth day of declines. European stocks headed for their biggest weekly drop in almost a year with the [FTSE 100]( down for a sixth day. Meanwhile Treasuries rose as speculation mounts the Fed could opt for a 50 basis point cut. Eyes on employment The keenly anticipated monthly report on [US employment]( expected to show a bounce in hiring and a tick lower in the unemployment rate in August, marking a stabilization after the July data sparked a growth scare in financial markets. Payrolls probably rose by 165,000 last month, according to the median estimate in a Bloomberg survey of economists, while unemployment probably edged down to 4.2%. The numbers may effectively decide the size of the Fed’s rate cut at its next policy meeting on Sept. 17-18. Investors are currently pricing in about 35 basis points of easing, suggesting they are uncertain as to whether the rate cut will be a quarter-point or half-point reduction. Broadcom disappoints Broadcom shares are tumbling in premarket trading after the firm, which supplies chips to Apple, delivered a [disappointing sales forecast]( hurt by the portion of its business that isn’t linked with artificial intelligence.  Though the company has benefited from a surge in AI spending, its other divisions — including mainframe products, security and data center software — aren’t as connected to this bonanza. Apple approves WeChat [Apple has green-lit a version of Tencent’s WeChat app]( ahead of the iPhone 16’s debut, buying more time for ongoing negotiations about changes the US company has demanded to China’s most-used social media platform. Apple’s approved a WeChat update for the iOS ecosystem Tencent submitted this week, adding new features within the Instagram-like WeChat Moments and live-streaming, according to people familiar with the matter. The approval is likely to quash speculation in China that a dispute between the US firm and China’s largest company over app store fees could snowball and even bar WeChat from the latest iPhones. Euro economy Turning to Europe, data showed economic momentum in the eurozone to have slowed in the second quarter. A key source of weakness is Germany, the bloc’s biggest economy, where output shrank in the second quarter amid a prolonged weakness in its manufacturing sector. Meanwhile a key measure of [euro-zone wage growth eased]( providing further assurance to European Central Bank officials seeking to lower rates next week. What We’ve Been Reading This is what’s caught our eye over the past 24 hours. - China’s [$100 billion short]( against dollar enriches hedge funds - [China needs to explain "enormous gaps"]( in its economic data, a leading US economist says. - Trump vows 15% corporate tax and taps [Musk for federal audit]( - Panasonic [is starting to sell TVs]( in the US again. -  Inside the plan for [a radical skyscraper renovation]( in London. And finally, here's what Justina’s interested in this morning Last week in this newsletter I [wrote]( about the inelastic markets hypothesis, which is this idea that sometimes even meaningless flows can move asset prices because not every investor group is responsive to changing prices and fundamentals. It just got a shout-out in Cliff Asness's [note]( about the "less-efficient markets hypothesis" -- a pretty big deal coming from Eugene Fama's PhD student (though the AQR co-founder ultimately [found]( gamified trading to be the biggest culprit). An academic paper I [penned]( with my teammate Lu Wang this week comes at inelastic markets from a different angle. It asks the question: If passive funds have gone from owning 2% to 20% of stocks over the last two decades, who sold those shares to them, especially when it doesn't seem like anyone else has been cutting their equity allocations that drastically? Macro Sammon at Harvard and John Shim at the University of Notre Dame look at this by tracking how nine groups of market participants changed their holdings of a stock every quarter, and how that responded to incremental passive demand. They found that by far, it's the corporates themselves who have been taking advantage of this to sell shares to index funds. Source: Marco Sammon and John Shim Bloomberg What this means is that there are tangible financing benefits from being on a benchmark. If you're a passive growth worrywart, the implication here is the industry might be hurting the efficient allocation of capital, since it only invests based on benchmark weightings. I put this to Owen Lamont -- a quant at Acadian Asset Management who's previously [critiqued]( David Einhorn's argument that passive has broken markets -- and he said the paper resonated with him, but it doesn't mean passive is uniquely distorting allocation. There could be dumb active too, so maybe the more important question is whether there's also less smart active. You might wonder: what about active funds (which in the paper do not include hedge funds)? It turns out they mostly buy and sell in the same direction as passive, which Sammon says might be because they're closet indexers or because they're getting flows at the same time as passive. How does this all relate to the inelastic markets hypothesis? Sammon and Shim say their results show demand might actually be even less elastic than everyone thought, since it turns out it's the supply side that has been adjusting. Or to put it another way, index funds would actually have pushed up stock prices more had the corporates not jumped in to sell more shares. There's also a dark side to their findings. To flip the question, what happens when index funds sell? Here the authors found most groups including firms aren't too responsive in taking the other side, leaving the likes of small institutional and retail investors to buy shares from index funds. How much you worry about that will depend on how much you worry about a period of sustained passive selling, which we haven't really seen. But let's not stew over this before the weekend. Justina Lee is a cross-asset reporter based in London.  Follow Justina on X @Justinaknope [Bloomberg Markets Wrap: The latest on what's moving global markets. Tap to read.]( Follow Us Stay updated by saving our new email address Our email address is changing, which means you’ll be receiving this newsletter from noreply@news.bloomberg.com. Here’s how to update your contacts to ensure you continue receiving it: - Gmail: Open an email from Bloomberg, click the three dots in the top right corner, select “Mark as important.” - Outlook: Right-click on Bloomberg’s email address and select “Add to Outlook Contacts.” - Apple Mail: Open the email, click on Bloomberg’s email address, and select “Add to Contacts” or “Add to VIPs.” - Yahoo Mail: Open an email from Bloomberg, hover over the email address, click “Add to Contacts.” Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. 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