US Stocks Slip as Strong Jobs Data Revives Fed Hike Expectations
US equities finished lower in trading on Friday as stronger-than-expected employment data pushed expectations for a further Federal Reserve rate hike higher. Non-Farm Payrolls rose by 162k jobs in August, significantly above economists’ expectations for a 56k increase, with markets now pricing the probability of a 25-basis point rate hike in September at around 60%.
The Dow Jones fell 0.51% to 53,414, while the S&P 500 declined 0.38% to 7,718 and the Nasdaq eased 0.29% to 26,506. The stronger employment data also drove Treasury yields higher, with the US 2-Year yield rising 3.0 basis points to 4.366%, while the 10-Year yield increased 1.4 basis points to 4.782%.
The US dollar strengthened broadly, with the USD Index rising 0.25% to 99.16 as traders increased bets on tighter Fed policy. Gold fell 1.01% to $4,427.69, pressured by both the stronger dollar and the shift in rate expectations.
Oil prices continued to move higher as tensions in the Middle East intensified. Brent crude rose 0.80% to $96.28, while WTI gained 0.20% to $91.48.
Middle East Tensions to Dominate Sentiment Early This Trading Week
Financial markets are likely to begin the week firmly focused on the escalating tensions between the US and Iran, following a fresh round of hostilities around the Strait of Hormuz over the weekend. Iran has warned of further retaliation after US military action against Iranian oil tankers, while Tehran has also threatened to establish an exclusion zone around the strategic waterway.
With the Strait remaining a key conduit for global energy supplies, any further deterioration in the situation is likely to keep oil prices elevated and inject another dose of inflationary pressure into markets. Brent crude has already moved back above $95 a barrel, with the risk of further disruption likely to remain a key consideration for traders.
The geopolitical backdrop is particularly significant at the start of this week, given the relatively light macroeconomic calendar over the first few sessions. This leaves developments in the Gulf likely to drive sentiment across equities, currencies, bonds and commodities, with safe-haven flows, higher energy prices and renewed concerns over inflation all potentially adding to volatility.
For now, traders will be watching closely for any further military escalation or signs that commercial shipping through Hormuz is being restricted, with either development likely to have an immediate impact across global markets.
Very Quiet Calendar Day to Start the Week
Markets are set for another potentially volatile start to the week as traders react to further geopolitical developments over the weekend, including reported ship strikes in the Strait of Hormuz from both sides. There is little of note on the macroeconomic calendar through all the trading sessions today, although moves could become more pronounced later in the day, with both the US and Canadian markets closed for a bank holiday, likely resulting in thinner liquidity conditions and potentially greater volatility. Yen traders will be particularly on edge, given the potential for intervention remaining high, especially when its impact could be at its greatest.
