US Markets Pull Back as Oil Surges on Hormuz Concerns
US equity markets pulled back overnight as investors continued to assess developments in the Middle East and positioned ahead of today’s highly anticipated US employment report. The Dow Jones fell 0.85% to close at 53,885, while the S&P 500 slipped 0.18% to finish at 7,709. The technology-heavy Nasdaq was more resilient, edging just 0.06% lower to close at 26,348.
The biggest moves came across the energy and bond markets after reports that Iran is considering banning ships from the US, Israel, and other countries it considers hostile from transiting the Strait of Hormuz. The prospect of further disruption to the key global energy route sent oil prices sharply higher, with Brent crude jumping 5.00% to US$83.42 a barrel and WTI gaining 2.75% to US$77.29.
The sharp move higher in oil prices also revived concerns over inflation, pushing US Treasury yields higher. The 2-year yield rose 6.4 basis points to 4.245%, while the benchmark 10-year yield climbed 6.5 basis points to 4.678%. The US Dollar Index benefited from the move, rising 0.27% to 99.95 as traders reassessed the potential impact of higher energy prices on the inflation and interest-rate outlook.
Gold struggled to build on its recent gains, falling 0.15% to US$4,239.23 an ounce as the stronger US dollar and higher Treasury yields provided some headwinds for the precious metal.
Non-Farm Payrolls Set to Dominate Trading Today
It is Non-Farm Friday, and all eyes will be firmly on the US employment market today, with the latest update due out shortly after the New York open. Non-Farm Employment Change is expected to show 85k jobs filled last month, with the Unemployment Rate remaining steady at 4.2% and the Average Hourly Earnings figures expected to again show a 0.3% increase month-on-month. The data will be closely watched for signs of whether the US economy is maintaining its recent resilience, with the results likely to have a major influence on expectations for the Federal Reserve’s next moves. The market is currently pricing in a 55% chance that the Fed will hike in September. A stronger-than-expected employment report could see Treasury yields push higher and provide further support for the US dollar, while a weaker result could see yields and the dollar come under pressure as traders reassess the outlook for US interest rates.
Geopolitics Set to Compete with Data for Sentiment into the Weekend
Geopolitical updates have largely defined a relatively quiet data trading week this week; however, today they are set to bash heads with arguably the month’s most important data release, the US Employment Report. The calendar is set up for a classic Non-Farms day, with little on the agenda in the first two trading sessions before the data update early in the New York session, and traders would normally expect quieter trading conditions for most of the day. However, any fresh updates on the Middle East could have the propensity to rock markets before US traders have made it to their desks, with any further escalation around the Strait of Hormuz likely to send oil prices higher again, adding another layer of uncertainty to the inflation outlook. Canada will also release its Employment Change and Unemployment Rate figures at the same time as the US numbers, and the Canadian Ivey PMI will follow later in the day. However, expect the US data to dominate. With Non-Farm Payrolls arriving alongside ongoing geopolitical risks, the final trading session of the week is shaping up to be another potentially volatile one across the major markets.
Explore all upcoming market events in the Economic Calendar.
Risk Warning: Trading in securities involves significant risk. Prices may fluctuate and securities can become entirely valueless. You may incur losses that exceed your potential profits, and in some cases, losses may exceed the amount you have deposited. Securities, futures, options, and contracts for differences are complex financial instruments and are not suitable for all investors. Engaging in such transactions requires a sound understanding of the associated risks. Please read and ensure you fully understand our Risk Disclosure.
Our leverage is dynamic and may change at any time. Such changes may affect your positions and margin requirements. You are responsible for monitoring your positions and maintaining sufficient margin at all times
