Market Developments
The August US jobs report was the defining event for markets this week. Nonfarm payrolls rose 162,000, well above consensus of roughly 53,000, while the unemployment rate held steady at 4.1% and June-July payrolls were revised up by a combined 44,000. The strong print reversed a mid-week decline in rate-hike expectations that had followed dovish comments from Fed Governor Waller, who said he would support holding rates steady if upcoming inflation data confirms continued disinflation. The strength of the labour market removed one of the Fed’s main reasons to hold, and implied odds of a 25bp hike at the September 15-16 FOMC meeting climbed back to roughly 58%. Equities and rates were volatile for a separate reason too: the US struck Iranian rocket launchers near the Strait of Hormuz on August 31, reviving fears of a shipping disruption and sending WTI oil toward its strongest weekly gain of 9.7% since July. The major US indices fell sharply to start the week, their worst session in roughly two weeks, before recovering into midweek on Waller’s remarks and finishing close to flat: the S&P 500 added 0.1%, the Nasdaq gained 0.4% on continued strength in chip stocks, and the Dow fell 0.3%. The 10-year Treasury yield swung between about 4.69% and an intraday high of 4.82%, its highest level since late 2023, before settling near 4.78% by Friday.
European equities fell as the oil shock and higher yields weighed on rate-sensitive sectors, with the Stoxx 600 down 0.8%. Japan’s Nikkei fell 2.1%, pressured by a sharply strengthening yen as investors priced in higher odds of a Bank of Japan rate hike at its September 17-18 meeting; the yen briefly touched around 155.25 against the dollar before easing back toward 156.2 by Friday’s close. Indian equities extended their decline for a fourth straight week, with the Sensex down 1.0%, as investors rotated out of autos, IT, and pharma. Hong Kong’s Hang Seng was the regional outlier, up 0.3% on renewed buying in AI and technology names, in contrast to a softer mainland China. Oil was the standout commodity mover, with WTI up 9.7% on Strait of Hormuz risk, while gold gave back about 0.6% as the stronger jobs data and firmer hike odds pressured bullion late in the week, even after touching a fresh high above $4,600 mid-week on dollar weakness.
