US Stocks Rally into the Weekend – Dow up 0.9%
US equity markets finished the trading week on a positive note on Friday, with all three major indices advancing as technology stocks once again helped support sentiment. The Dow Jones gained 0.93% to close at 51,828, while the S&P 500 rose 0.51% to 7,743. The Nasdaq also moved higher, adding 0.48% to finish the session at 27,068.
US Treasury yields retreated from recent highs as some buying returned to the bond market. The policy-sensitive 2-year yield fell 7.3 basis points to 4.852%, while the benchmark 10-year yield declined 3.7 basis points to 5.160%. The pullback in yields also weighed on the US dollar, with the Dollar Index dropping 0.25% to close at 101.04.
The yen was a key focus in currency markets, with USD/JPY moving lower following further comments regarding yen weakness from both Japanese and US officials. The remarks increased speculation that policymakers could take additional steps to support the Japanese currency, keeping intervention concerns firmly on traders’ radar.
Oil prices fell sharply on Friday as hopes increased that US and Iranian representatives could find a path towards ending the current conflict. Brent crude dropped 2.14% to $104.32 per barrel, while WTI declined 2.33% to $92.41. However, both major contracts are expected to open the new trading week higher after President Trump rejected Iranian ceasefire proposals over the weekend, once again raising concerns over the outlook for the conflict and regional energy supplies.
Gold experienced another volatile trading session but ultimately finished modestly higher, gaining 0.19% to close at $4,286.25 per ounce. The decline in US Treasury yields and the softer dollar provided some support for the precious metal, although geopolitical headlines continued to contribute to intraday volatility.
Geopolitics Goes Head-to-Head with Fundamentals this Week
Global financial markets are set for another potentially volatile trading week, with geopolitical developments competing with a much busier fundamental calendar for market sentiment. The ongoing conflict in the Middle East will remain a major driver of sentiment, particularly after President Trump rejected Iran’s latest ceasefire proposal over the weekend.
However, the focus should increasingly shift towards the US economy as the week progresses, with a series of important releases likely to have a significant influence on Federal Reserve expectations. Tuesday’s JOLTS job openings figures will provide the first major update on labour-market conditions, before the inflation picture comes back into focus with the Fed’s favoured inflation indicator, the Core PCE data, due on Wednesday.
The main event arrives on Friday with the September Nonfarm Payrolls report. Following the Federal Reserve’s recent 25-basis-point rate hike and increasingly hawkish policy outlook, traders will be watching employment growth, unemployment and wage pressures closely for clues on whether policymakers could deliver another hike at the next meeting, which at the moment is priced in as a 65% chance.
A combination of strong employment numbers and persistent inflation would likely reinforce expectations for further rate hikes ahead, potentially pushing Treasury yields and the US dollar to fresh record levels while creating headwinds for equities. Conversely, softer jobs and inflation figures could provide some relief to bonds and stocks as rate hike expectations pull back.
Another Quiet Calendar Monday to Start the Week
The economic calendar is relatively quiet today; the Asian session is quiet, with just the Bank of Japan’s Monetary Policy Meeting Minutes due early in the day. Attention will then turn to ECB President Christine Lagarde during the London session, when she testifies before the Committee on Economic and Monetary Affairs of the European Parliament, but once again, there is little else on the calendar to move the dial.
Despite the limited economic calendar, geopolitical developments are likely to remain the dominant driver of market sentiment. The rejection of Iranian ceasefire proposals over the weekend could see renewed volatility across oil, equities, bonds and currencies as the new trading week gets underway.
