Market Snapshot (Weekly Moves)
Equities – U.S. (S&P 500):
The S&P 500 closed around 6,460 on August 29, staying relatively flat from approximately 6,458 at the start of the week — an increase of ~0.04%.Equities – Europe (Euro Stoxx 50):
Europe’s benchmark also weakened, finishing the week down about −2.4%.Rates – U.S. 10‑Year Treasury Yield:
U.S. 10‑year yields eased modestly to around 4.23%, down approximately −0.6% versus the prior week.FX – U.S. Dollar Index (DXY):
The DXY remained relatively flat, up about ~0.14% over the past week, trading near the 97.7–97.9 range.Commodities – Brent Crude:
Brent traded near $68, ending the week down roughly -0.5%.
Deep Dive: The Dollar Smile Theory — Still in Effect?
The Dollar Smile Theory is one of the cleaner frameworks in macroeconomics. It suggests the dollar strengthens at two extremes:
Crisis mode → when investors rush into safe havens.
U.S. exceptionalism → when U.S. growth and yields outpace’s peers.
The dollar tends to weaken in the middle ground of broad, synchronized growth.
So where are we today? The picture leans toward the “right side” of the Smile. U.S. data is mixed but resilient: GDP growth has surprised modestly to the upside, inflation is easing but still sticky, and the labor market, while its giving a mixed picture, it remains relatively healthy with unemployment holding at ~4.2%. That’s above the cycle trough (sub-4%), but still stronger than most developed peers.
Europe and China, in contrast, are struggling. The euro area faces weak manufacturing and stagnation risks, while China is still grappling with property-sector stress and sluggish consumer demand. The relative growth gap is widening, and global capital is reflecting that gap in flows.
Layer on geopolitics, oil supply tensions, election uncertainty, and trade frictions, and the dollar is benefiting from a dual role: part safe-haven, part yield play. It isn’t soaring on panic, but it’s being bid on relative strength.
The key risk is that U.S. resilience fades. A meaningful rise in unemployment or a sharp slowdown in retail sales would pull the U.S. toward the “middle ground” of the Smile, the zone where the dollar weakens. With speculative USD longs already crowded (notably in USDJPY), the positioning risk is real.
The Dollar Smile still fits. We’re on the “U.S. outperformance” side, but the smile is less wide than before. The risk isn’t a collapse, but a drift toward the middle if the labor market cracks. For now, the dollar remains supported more by relative strength than by fear.
Concept Corner: What’s a Basis Point?
A basis point (bps) is one-hundredth of a percentage point (0.01%). If a bond yield rises from 4.20% to 4.25%, that’s a move of 5 basis points. It sounds tiny, but in global markets, basis points drive billions: a 10 bp move in U.S. Treasuries can reprice mortgages, FX hedges, and entire portfolio valuations.
Outlook for Next Week
Markets ended the week slightly flat/lower, with the S&P 500, Dow, and Nasdaq each down or flat, while the Russell 2000 eked out a gain. Next week’s focus will be jobs data. A heavy calendar brings JOLTs, ADP, Challenger cuts, claims, and Friday’s Nonfarm Payrolls, where consensus expects just +75k jobs. A beat could reinforce the Fed’s cautious stance; a miss would sharpen slowdown concerns.
Key catalysts:
Mon (Sep 1): Labor Day (markets closed)
Tue (Sep 2): ISM Manufacturing
Wed (Sep 3): JOLTs, Factory Orders
Thu (Sep 4): Claims, ADP, Challenger, ISM Services
Fri (Sep 5): Nonfarm Payrolls, Unemployment Rate, Participation