Oil prices climbed amid uncertainty over a Strait of Hormuz agreement, while bond markets weakened due to renewed inflation concerns. Investors are broadly waiting for Friday's US nonfarm payrolls report to find the latest clues on the Federal Reserve's interest rate path.
Asia-Pacific stocks edged down 0.2% on the 7th, with South Korea's market leading the decline with a drop of over 1%. US stock index futures were largely flat, while European stocks are expected to close slightly lower after hitting a record high the previous day.
According to CCTV News, two explosions were heard near Iran's Qeshm Island at around 21:40 local time on the 6th. Iran stated the explosions were caused by targeting enemy forces near the entrance to the Strait of Hormuz, with the results of the operation to be announced to the public in the coming hours. International benchmark Brent crude rose 1.6% on Friday to $83.80 per barrel. Despite this, Brent is still down about 5% for the week, weighed down by expectations of a US-Iran deal earlier in the week.
The rebound in energy prices has reignited market concerns about inflation, with investors worried the Federal Reserve may need to keep interest rates high for longer. The yield on the 10-year US Treasury note held at 4.68%, after climbing 7 basis points during the US trading session.
Key Market Snapshot:
Asia-Pacific stocks edged down 0.2%, with South Korea's market falling over 1%
The US dollar strengthened against most G10 currencies, with the Japanese yen flat around 158.40 per dollar
The 10-year US Treasury yield was little changed at 4.68%
West Texas Intermediate crude rose 1.3% to $78.31 per barrel
Spot gold gained 0.6% to $4,265 per ounce
Bitcoin fell 0.3% to $64,196.68
Middle East Deal Uncertainty Keeps Oil Prices Volatile
Iranian local media, citing a reportedly proposed draft Iran-Oman agreement, stated that Iran would seek to restrict the passage of US and Israeli ships through the Strait of Hormuz and require payment of compensation from countries it views as hostile before allowing them to pass through this strategic waterway.
This report emerged just as officials from both Washington and Tehran had signaled that an agreement might be close. Trump has recently withdrawn his threat to resume military strikes against Iran, and when asked about the latest developments, said things were "going well."
Mark Cranfield, a strategist at Bloomberg, noted: "Both WTI and Brent contracts hit their session highs as investors anticipate a US response to reports that Iran plans to restrict the right of passage through the Strait of Hormuz for hostile nations." He also cautioned that the rally remains moderate for now, with Brent crude still trading near the middle of the range it has held since late May.
Employment Data Becomes a Key Signal for the Fed's Path
On the domestic front in the US, economic data released on Thursday showed the labor market remains resilient, with initial jobless claims falling below 200,000 for the third consecutive week. This indicates that the direction of inflation will be the core variable for the Fed's September meeting.
According to a Bloomberg survey, economists expect nonfarm payrolls to increase by 80,000 in July, up from the below-expected 57,000 in June. This report is seen by the market as the clearest signal yet to reveal whether the pace of labor market cooling is sufficient to support expectations for a rate cut later this year.
David Chao, a global market strategist at Invesco, said: "There is considerable uncertainty about the US labor market and the subsequent policy path of the Fed. Investors may be cutting risk exposure and taking profits ahead of the nonfarm payroll data."
José Torres, a senior economist at Interactive Brokers, wrote in a research note: "Even a weak nonfarm payrolls report accompanied by a modest unemployment rate would be enough to ignite a rally in Treasuries. Once fixed-income investors start worrying about potential job cuts, the downside risk to the economy will gradually be reflected in the yield curve."
Dollar Strengthens, Yen Gives Up Intervention Gains
The US dollar strengthened against most G10 currencies, supported by rising Treasury yields due to expectations of higher interest rates. The Bloomberg Dollar Strong Index stabilized after posting its biggest one-day gain in two weeks during the New York session.
Regarding the Japanese yen, following a week of intervention-driven appreciation, the yen has given back nearly half of its gains this week, trading flat around 158.40 per dollar on Friday. The yen had previously hit a strong level of 155.23. According to a report by the Financial Times, the US operation, which involved using euros to buy yen, caught European officials by surprise.
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