Futures Rise Ahead Of Closely Watched Jobs Report

US futures grind higher in a European session devoid of newsflow ahead of nonfarm payrolls. As of 815am ET, S&P futures rose 0.2% while Nasdaq futures gained 0.4%, with some of yesterday’s beaten up tech names such as Sandisk and Western Digital getting some reprieve in the premarket. Asian stocks swung between a loss of as much as 0.5% and gain of 0.4%. South Korea’s Kospi declined as much as 2.2% before paring the loss; the index was headed to its seventh weekly drop, longest losing streak in more than three years. Nikkei and Taiex indexes also drift lower while indexes rose in mainland China.  Oil was given a boost in APAC hours as progress on an agreement to reopen the Strait of Hormuz remained elusive and a report noted that Iran attacked “hostile targets” in the Strait of Hormuz; but upside has since wavered with Brent now in the red and near session lows. US yields which track oil tick for tick, are down around 1bps across the curve with odds of a September Fed hike at around 60% as the clock ticks down to jobs data. The dollar is down 0.1% after posting its biggest advance in two weeks during the New York session. USD/JPY is maintaining its position on a 158 handle. Precious metals are marching higher with spot gold trading on a $4300/oz handle for the first time since mid-June. Bitcoin is up 0.7%. On today's calendar we get the US July jobs report; other data releases include NY Fed 1-yr inflation expectations, June consumer credit. The Fed’s Barkin will also speak today.

In premarket trading, Mag 7 stocks are mixed (Tesla +0.7%, Amazon +0.6%, Alphabet +0.1%, Nvidia +0.1%, Apple -0.2%, Meta -0.4%, Microsoft -0.5%)

• Applied Opto (AAOI) is up 14% after second-quarter earnings and revenue from the fiber-optic networking gear firm beat estimates. Peers including Fabrinet and Coherent gain.
• Atlassian (TEAM) soars 32% after the maker of Trello collaborative software reported an increase in quarterly revenue, easing concerns that AI would hurt the business.
• Cloudflare (NET) rallies 17% after the software company hikes its annual profit forecast, beating the average analyst estimate.
• DraftKings (DKNG) shares slip 3.6% in premarket trading after the sports-betting company reported revenue and adjusted Ebitda for the second quarter that fell short of the average analyst estimate.
• Doximity (DOCS) soars 78% after the company raised its revenue forecast for fiscal 2027.
• Figs (FIGS) jumps 29% after the medical-apparel maker posted a beat on second quarter results and upped its forecast for full-year adjusted Ebitda margin.
• Gold and silver stocks are rising in premarket Friday, with gold on track for its best week in more than six months as dip buyers supported prices.
• Maplebear Inc. (CART), doing business as Instacart, jumps 12% after the company’s forecast for third-quarter gross transaction value beat the average analyst estimate.
• Sezzle (SEZL) slides 22% as analysts look past the financial technology firm’s outlook upgrade for 2026, and say expectations had already built up around the earnings following the stock 181% year-to-date rally.
• Solar stocks rise in premarket Friday after President Donald Trump ordered new 15% tariffs and a price floor for imports of polysilicon derivatives, including silicon wafers, photovoltaic cells and solar modules.
• Sweetgreen (SG) sinks 15% after the salad chain cut its annual outlook after warning that diners are less willing to eat fresh prepared foods during the cyclospora outbreak.
• Trade Desk (TTD) tumbles 27% after the advertising technology company#s reported earnings for the second quarter and gave a third-quarter-revenue forecast that missed analyst estimates. At least four brokerages downgraded their rating on the stock

In other news, SK Hynix plans a 54 trillion won ($38 billion) expansion of its DRAM and NAND manufacturing in South Korea, part of the giant outlay announced earlier in the summer. Jane Street is negotiating with investors in a private-credit deal to rework the firm’s $11 billion debt load and limit its financial disclosures to market participants. The FAA has asked operators of 471 Boeing 737 Max jets to undertake checks for cracks of a component that could undermine the structural integrity of the aircraft.

Ahead of today's main event, the July jobs data at 8:30am (full preview here), which will give Warsh further insight into whether to keep rates on hold or hike, the median estimate for nonfarm payrolls change is 80k, following 57k in June. Crowd-sourced whisper number is currently 78k.  JPMorgan market intelligence scenarios show that a hawkish reading, leading to negative market reaction, would be a print above 150k. Stronger-than-expected data could trigger a pullback in risk assets by reinforcing expectations that rates will stay higher for longer. Goldman notes that alternative measures of employment growth slowed modestly in July. 

“Kevin Warsh’s ambiguity at the July FOMC means data releases like today’s payrolls carry greater risks of an outsized market reaction,” ING Bank strategists including Frantisek Taborsky wrote in a note. “We are still looking at no Fed cuts and dollar softening going forward.”

“A weaker top-line figure will be enough to spark rallies in Treasuries even if it’s paired with subdued unemployment, because slowdown risk would begin to make its way onto the curve if fixed-income investors fear that rosters could start contracting,” José Torres, senior economist at Interactive Brokers, wrote in a note.

Oil retreated from Thursday’s sharp rise as traders weighed negotiations between Iran and Oman over the Strait of Hormuz against renewed tensions, with Tehran seeking to bar US ships from a deal to partially restore shipping through the critical waterway. Brent crude fell 0.7% to below $82 a barrel, bringing its decline this week to 6.9%.

Elsewhere, BofA’s Michael Hartnett said EPS optimism is soaring, while recommending investors retreat from risk assets and/or rotate into some defensives (staples), duration (REITs, small cap, biotech) and US dollar, all protected from ongoing tightening of financial conditions. The BofA Bull & Bear Indicator rises to 9.7 from 9.4, the highest since 2021 and in “sell signal” territory.

The Stoxx 600 rose 0.6% as European equities edged higher on Friday with technology and health care stocks leading gains, while the biggest laggards are telecommunications and energy shares. Novo Nordisk A/S climbed 4.6% after a US judge threw out an antitrust lawsuit against its blockbuster weight-loss drug.  Among other movers in Europe, Kingspan Group Plc surged to a four-year high after the insulation specialist lifted full-year guidance. Genmab A/S jumped 8.3% after the Danish biotech company reported better-than-expected second quarter profit and boosted its outlook for the full year. Daimler Truck Holding AG fell 4% after reporting results. Here are the biggest movers Friday:

• Kingspan shares rise as much 17% after the insulation specialist topped expectations in the first half and lifted its trading profit guidance for the full year
• Genmab jumps as much as 10%, the most since February 2024, after the Danish biotech company reported better-than-expected revenue and operating income for the second quarter and boosted its outlook for the full year
• Novo Nordisk gains as much as 5.4%, outperforming the Stoxx 600 Health Care Index and putting the stock back into positive territory for the week
• Mol rises as much as 2.6% after the Hungarian refiner reported Clean CCS Ebitda for the second quarter that beat the average analyst estimate
• Aurubis shares drop as much as 5.7%, extending Thursday’s 5.5% decline following the copper smelter’s one-year delay to a new American smelting complex. Deutsche Bank cut its price target slightly
• Daimler Truck falls as much as 4.4% after the German firm announced weaker orders than analysts had expected and softer third-quarter guidance after its second-quarter results were pre-released last month
• Stellantis drops as much as 3.8% as the carmaker was downgraded to underperform from market-perform at Bernstein, which says there is still substantial scope for estimate reductions
• Orlen slips as much as 3.5% after the Polish refiner reported second-quarter results that analysts described as mixed. Wood & Co analysts cited disappointing oil & gas production despite favorable market conditions
• Amrize drops as much as 11%, on course to close at a record-low, after the building-materials company missed earnings expectations in the second quarter and cut its adjusted Ebitda guidance for the year
• Lanxess falls as much as 6.2% after the German chemical firm posted results that Goldman Sachs analysts said offered little to sustain recent positive momentum
• Munich Re declines as much as 5.3%, the most since May and the worst performer on the Stoxx 600 Insurance Index, after the German reinsurer cut its insurance revenue guidance for the year
• Erdemir falls as much as 6.6%, the most since May 21, as its second-quarter profit beat was attributed to a positive tax expense rather than operations

Asian stocks traded in a narrow range, as investors stayed cautious ahead of US payrolls data while awaiting concrete signs of progress on a deal to open the Strait of Hormuz. The MSCI Asia Pacific Index swung between a loss of as much as 0.5% and gain of as much as 0.4%. South Korea’s Kospi declined 0.6%, while indexes in China advanced.  SK Hynix narrowed losses in post-market trading on Nextrade after the company announced plans for a 54 trillion won ($38 billion) expansion of its local chipmaking facilities. The company also said it will detail shareholder return plans in the third quarter. The overall relative market calm after recent big swings belied ongoing unease over a tech-led rally that has faltered in the past month, as investors look for clues on sustainability of the AI boom. US-Iran talks are also keeping traders on their toes, with the impact on oil prices keenly in focus. The US jobs report due later Friday will give clues on the health of the world’s largest economy. Here Are the Most Notable Movers

• SBI reported net income for the first quarter that beat the average analyst estimate.
• SK Hynix is actively considering additional shareholder returns and will announce details in 3Q, according to a regulatory filing.
• China rare earth stocks jump as growing optimism over their strategic importance amid US-China tensions boosts sentiment. Wharf Real Estate Investment shares rise after JPMorgan upgraded the firm to overweight from neutral while Citi opened a 90-day upside catalyst watch.
• Lasertec shares fell 14%, after the Japanese semiconductor company’s full-year operating income guidance fell short of the average analyst estimate.
• Bridgestone reported adjusted operating profit for the first half-year that beat the average analyst estimate.
• Eneos reported operating income for the first quarter that beat the average analyst estimate.
• China rare earth stocks jump as growing optimism over their strategic importance amid US-China tensions boosts sentiment.
• Obayashi reported operating income for the first quarter that beat the average analyst estimate.
• Wharf Real Estate Investment shares rise as much as 8.3%, after JPMorgan upgraded the firm to overweight from neutral while Citi opened a 90-day upside catalyst watch.
• Fujifilm Holdings Corp. shares fell by the most on record after the Japanese company reported weaker-than-projected quarterly results.

“It’s the caution on Middle East conflict and secondarily on interest rate direction,” said Xin-Yao Ng, a fund manager at Aberdeen. “In tech as well, there have been some earnings misses, and investors are starting to take more nuanced views on stocks, more driven on stock specific factors than being driven by blanket views on sectors.”

In FX. the Bloomberg Dollar Spot Index is down 0.1%. USD/JPY is maintaining its position on a 158 handle.  US support for Japan’s efforts to prop up the yen is unlikely to damage the dollar’s status as the most dominant reserve currency, according to Goldman Sachs. 

In rates, treasuries are marginally richer across the curve led by 5- to 7-year sectors, supported by lower oil prices as traders weigh negotiations between Iran and Oman against renewed tensions. Treasury yields richer by 1.5bp to 2.5bp across the curve with key curve spreads steeper by less than a basis point. US 10-year yield is around 4.66% as Treasuries slightly outperform European bonds. US session main event is July jobs report, with around 60% of a quarter-point rate hike priced in for Fed’s September policy meeting. IG dollar issuance slate empty so far. Alphabet’s jumbo offering headlined a $37b docket Thursday, bringing weekly supply to $80b. Issuers paid about 12bp in new issue concessions on deals that were 3.8 times oversubscribed.

In commodities, WTI crude oil futures are down 0.7% after erasing gains. Precious metals are marching higher with spot gold trading on a $4300/oz handle for the first time since mid-June. Bitcoin is up 0.7%.

Today's top event is the July jobs data at 8:30am, where the median estimate for nonfarm payrolls change is 80k, following 57k in June. Crowd-sourced whisper number is currently 78k. US economic data calendar also includes July 1-year NY Fed inflation expectations (11am) and June consumer credit (3pm). Fed speakers scheduled include Richmond Fed’s Barkin at 10am

Market Snapshot

Top Overnight News

• The Houthis conducted a “large-scale” attack against forces from Yemen’s Saudi-backed government killing “hundreds” of troops. They also struck the southwestern Saudi region of Najran, raising concerns over a widening of the US-Israeli war on Iran into a broader conflict. BBG
• Trump said negotiations between Iran and Oman over the Strait of Hormuz are “moving along,” even after some Iranian lawmakers said they would seek to bar American and Israeli ships from the waterway as part of the deal: BBG
• According to the apparent draft plan published by Iran, the country would ban U.S. and Israeli ships from transiting the Strait. Until compensation is paid, other nations that have harmed Iran would not be allowed to transit. While Iran and Oman are reportedly working on an agreement to define transit routes in the Hormuz strait, a deal still has not been announced. According to media reports, inbound traffic would transit Iranian waters while outbound traffic would go through Omani waters. CNBC
• The war on Iran is hitting nations in Asia hard, with Australia and New Zealand racking up billions of dollars in higher fuel costs: BBG
• Trump ordered new tariffs and price floors on imported polysilicon used in chips and solar panels. The 15% levies take effect December 4th and could trigger a rush of purchases. BBG
• Chinese firm Moonshot’s latest artificial intelligence model broke out of a cyber-testing environment in the latest incident that raises concerns about how well AI companies control their technology. Moonshot joins US firms Anthropic, OpenAI and Meta., which have in recent weeks reported breaches that saw their models escape testing environments. BBG
• China’s July crude imports rebounded 22% from June to 35.7 million tons, while inbound shipments of iron ore fell. Soybean purchases tumbled more than 15% in the same period. BBG
• Japan’s household spending unexpectedly fell for a seventh month, declining 3.3% in June, even as real wages continued to increase. BBG
• SK Hynix will invest about $38 billion to build two new chip plants in South Korea, adding to efforts to rapidly double its production capacity and ease a global shortage of memory. It also announced it could make a formal statement on shareholder capital return in Q3. BBG/Reuters
• U.S. job growth likely picked up in July, offering reassurance that the labor market remained resilient and allowing the Federal Reserve to maintain its focus on inflation. The Labor Department's closely watched employment report today at 8:30am is also expected to show the unemployment rate unchanged at 4.2% last month even as the labor ‌force participation rate is anticipated to have rebounded after declining to more than a five-year low in June. Reuters
• Airbnb jumped premarket after boosting its revenue forecast for the second time this year on robust global travel demand, particularly in the US and Europe. BBG
• Japan’s ¥317.76 trillion ($2 trillion) Government Pension Investment Fund posted a record 8.2% gain in the three months ended in June: BBG
• US President Trump, when asked if Fed Governor Warsh could hike ahead of the mid-terms, said it’s "up to him a little bit, but not completely" and continued to praise Warsh. Within the interview Trump also suggested that GOP voters may not come to vote as he is not on the ballot, saying "They’re angry at Republicans, but they’re not angry at me."
• US President Trump said it is way too early to think about a JD Vance endorsement [for President].
• BofA's weekly flow report noted USD 53.7bln into cash, USD 32.9bln into stocks, USD 23.1bln into bonds, USD 0.9bln into gold and USD 0.6bln into crypto. Bull & Bear Indicator rose to 9.7 (from 9.4).

A more detailed look at global markets courtesy of Newsquawk

APAC stocks ultimately traded mixed following the weak lead from Wall Street, while participants also digested a busy slate of earnings and the latest Chinese trade data. ASX 200 was little changed as strength in materials, energy and miners counterbalanced the underperformance in the financials and defensive sectors, while participants also reflected on the somewhat mixed trade data from Australia's largest trading partner. Nikkei 225 declined amid a busy day of earnings and with risk sentiment not helped by disappointing Household Spending data, which showed a surprise contraction, while a government official noted that typhoons, cold weather and more rain led to reduced beverage and dining out expenses. KOSPI retreated with price action initially choppy amid some earnings releases and the mixed performances seen in South Korea's tech heavyweights. Hang Seng and Shanghai Comp kept afloat with the Hong Kong benchmark in relatively flat territory, while the mainland outperformed after the latest Chinese trade data, which showed exports topped forecasts, and imports missed with a sharper-than-forecast deceleration, but continued to show double-digit percentage growth.

Top Asian News

• Japanese Finance Ministry data showed Japan conducted yen buying intervention on a total of three days in April and May, while the largest daily intervention in April-June quarter was JPY 6.2787tln on April 30th

European bourses begin Friday's trade mixed, with the DAX 40 outperforming while the IBEX 35 lags. Focus still remains on the Middle East. Overnight, MS News reported that Oman and Iran reached an agreement over the Strait of Hormuz, although the diplomats declined to describe the details of the temporary agreement or what issues remain unresolved. Sectors lack a clear bias. Health Care tops the sector pile, after Genmab's (+9.2%) H1 revenue rose Y/Y and lifted its FY outlook. Tech and Media round out the top 3 outperformers. To the downside is Telecoms, with Utilities and Travel & Leisure following suit.

Top European News

• German Balance of Trade (Jun) 15.4B vs. Exp. 17.4B (Prev. 19.1B).
• German Exports MoM (Jun) M/M 0.9% vs. Exp. 0.2% (Prev. 0.9%).
• German Imports MoM (Jun) M/M 4.4% vs. Exp. 1.4% (Prev. -2.5%).
• German Industrial Production MoM (Jun) M/M 0.2% vs. Exp. 0.3% (Prev. 0.9%).
• French Balance of Trade (Jun) -5.8B vs. Exp. -6.5B (Prev. -6.9B).
• French Exports (Jun) 54.5B (Prev. 53.6B).
• French Imports (Jun) 60.4B (Prev. 60.5B).
• French Unemployment Rate (Q2) 8.3% vs. Exp. 8.2% (Prev. 8.1%).

FX

• Very quiet action in G10 FX ahead of this afternoon's NFP.
• DXY flat against all G10 peers (ex. Scandis) ahead of US Payrolls, trading just below 100.00 as it did throughout APAC. Expectations are for the US economy to have added 88K nonfarm payrolls in July, up from June’s 57K, with the unemployment rate seen holding steady at 4.2%. Some desks also flag the possibility of large revisions given survey modelling factors. Compiling banks' scenario analysis, the likely reaction will be the typical dovish on a soft headline print and hawkish on a hot figure. GS and JPM flag the unwinding of World Cup-related hiring and a rebound in labour force participation which could skew July toward softer payrolls. Deutsche Bank summarises, "In summary, if the labour market data remain stable as we expect, Fed officials will be left with one side of its dual mandate to focus on inflation.", a view more in line with FT sources citing Governor Warsh's focus on incoming inflation data as reported on Thursday.
• Scandis are modestly outperforming today, EUR/SEK and EUR/NOK finding further sellers both below 11.00. Guidance at the Norges Bank decision next week could further cement a hike later in the year and increase appetite for carry. EUR/SEK may remain in tighter ranges with the 50 DMA above at 10.99, and 100DMA below at 10.92. EUR/NOK is below all significant DMAs, with the 100DMA above at 11.00.
• Action is quiet elsewhere. EUR outperforms vs. most CEE currencies after a somewhat dovish CNB meeting on Thursday, while HUF reacts to soft July inflation data which fell beneath previous and the NBH's forecast.

Fixed Income

• A contained start to the final session of the week for fixed, with the market now waiting for US NFP and a concrete update on the situation between the US and Iran.
• USTs in a narrow 108-13 to 108-17 parameter, into Payrolls. Proxies into the print have been mixed, weekly claims hit nearly a 60yr low, but in contrast the ADP figure was below consensus. Similar divergence seen across other indicators, such as ISM. While pertinent, the main focus for the Fed is on the inflation side of the mandate, as officials continue to characterise the labour market as stable. As such, next week’s CPI may prove more influential, particularly after the FT sources piece on Thursday, which enhanced the focus on such prints into the next FOMC.
• Bunds and Gilts are also relatively contained, though with a bearish bias and are posting downside of around 20 ticks. Specifics for the space are a little light, the focus is firmly on the above factors. Bunds lower in a 124.71-89 band, while Gilts are off worst in 87.09-38 confines.
• Australia sells AUD 1bln 1.50% June 2031 bonds b/c 4.07, avg yield 4.5878%.

Commodities

• WTI and Brent futures have been holding a mild positive bias since the futures reopen as tensions between the Houthis and Saudis grow, while questions remain regarding the Iran-Oman deal as Iranian reporting on the text of the deal pointed to unfavourable terms for the US and its regional allies. Add to that, sources noted that the sound of two explosions heard in Qeshm late on Thursday was due to a confrontation with hostile targets at the entrance to the Strait of Hormuz. Markets await official details of the Iran-Oman deal and the US’ reaction. Newsflow throughout the European morning has been light, with WTI Sep’26 in a current USD 77.56-78.77/bbl range, whilst Brent Oct’26 resides in a USD 83.04-84.44/bbl range thus far. Dutch TTF is off highs but firmer intraday, briefly dipping under EUR 56.50/MWh after finding resistance near EUR 59/MWh.
• Metals are firmer despite the oil move, as markets continue to hope for US-Iran diplomacy. Spot gold gradually gained amid reports of the PBoC stockpiling more gold in Hong Kong, although the precious metal remains within the prior day's parameters as participants await the key US jobs data. The yellow metal trades towards the top end of a USD 4,230-4,316/oz vs yesterday’s USD 4,224-4,304/oz range. Spot silver outperforms after topping yesterday’s USD 62.91/oz high and regains the USD 64/oz mark.
• Copper futures traded sideways but with modest intraday gains in a narrow USD 14,226.13- 14,106.85/t range for 3M LME, with the broader metals space awaiting NFP in the absence of fresh geopolitical updates.
• UBS forecasts Gold to reach USD 5k/oz in H1 2027; notes Gold prices may remain relatively volatile in the near term.

Trade/Tariffs

• White House said tariffs on polysilicon and related products will begin at 00:01EDT on December 4th.
• Canadian minister responsible for Canada-US trade LeBlanc said Canadian trade negotiators held productive and detailed talks with USTR Greer in Washington on Thursday.

Central Banks

• Fed's Musalem (2028 voter) said inflation is too high and the balance of risks is tilted towards higher price pressures, while he added it is crucial that monetary policy puts meaningful restraint on inflation. Musalem commented it is wrong to keep rate policy easy, hoping to foster higher productivity rates. Furthermore, he favoured raising rates at the recent FOMC meeting and sees a higher probability that inflation will remain above the target, as well as stated that gradual rate increases are less costly than more abrupt rate changes.

Geopolitics: Iran

• US President Trump said he thinks the war with Iran will end pretty soon and that the Strait of Hormuz is sort of opened right now. He later said that it is moving along good regarding the Strait of Hormuz.
• Iranian Supreme Leader adviser Rezaei said we will not allow the opening of the second route in the Strait of Hormuz, and reiterated that if the blockade continues, American ships and forces will face serious dangers and casualties, according to Tasnim.
• Explosions were reportedly heard in Marib, western Yemen, according to Al Arabiya TV citing local sources.
• Saudi source said reliable intelligence reports indicate coordination between Houthi and Iraqi militias and the Revolutionary Guard to attack the Kingdom, Al Hadath reported. The source added that the coordination of militias against the Kingdom comes as negotiations are progressing positively and that the Kingdom will not hesitate to take all necessary measures to deal with any aggression.
• Turkey, Saudi Arabia and Pakistan are to sign joint defence agreement in Saudi Arabia on Friday, according to sources cited by Reuters.

Geopolitics: Ukraine

• US President Trump said he thinks they are making progress on Russia and Ukraine.
• US intelligence finds Russian President Putin is seeking ways to test NATO resolve as grip on Ukraine slips and could test its resolve with a limited assault on an allied country in the next few years, according to WSJ.

US Event Calendar

• 8:30 am: Jul Change in Nonfarm Payrolls, est. 80k, prior 57k
• 8:30 am: Jul Change in Manufact. Payrolls, est. 3.5k, prior 3k
• 8:30 am: Jul Unemployment Rate, est. 4.2%, prior 4.2%

DB's Jim Reid concludes the overnight wrap

Welcome to another payrolls Friday. I'm trying to keep myself off the grid as much as possible at the moment as I've just started work on the annual long-term study. It's always daunting having a blank sheet of paper at the start of the process and trying to think of something original, interesting, analytical, and actionable. After over 20 years of doing it, when I finally find that combination, I'll let you know. 

In terms of today's big number, our economists expect a slight uptick in headline (+65k forecast vs. +57k previously) and private (+65k vs. +49k) payrolls. They suggest this would put the latest readings below the 3- and 6-month moving averages, consistent with the recent slowing in the weekly ADP reports. Consensus is at 80k for both. Our economists expect the unemployment rate to remain unchanged at 4.2% on a rounded basis versus 4.19% last month, which was its lowest reading in a year, even if it was accompanied by a 0.3pp fall in the labour force participation. So there is a risk this corrects and we see a tick up to 4.3%.

Ahead of this, markets have edged a bit more nervously into the end of the week over the last 24 hours as preliminary details on the finalized Iran-Oman deal to reopen the Strait of Hormuz emerged. The details, which included a permitting licensing framework and ban on US and Israeli vessels transiting, were reported by Iran’s semi-official Fars News Agency, which cited a source from the country’s foreign ministry. So those conditions on the deal led Brent oil to rise +3.83% back up to $82.49/bbl, while WTI (+2.75% to $77.29/bbl) also spiked. European natural gas prices also rose +6.42% in their largest daily rise in two months. In turn, the higher energy prices weighed on equities, with the S&P 500 (-0.18%) down whilst sovereign yields ended the day notably higher. This morning Brent is another +1.98% higher after Fars also reported that Iran struck “hostile targets" at the entrance to the Strait.  

Delving into more details of the proposed Iran-Oman deal first, whilst information is still trickling in, what we know based on the Fars reporting is that US and Israeli vessels would be prohibited from transiting through the Strait, with cargo related to Israel also banned. Other countries that caused damage to Iran will also not be granted a permit until the damage is compensated, with Iran stating that violators will face a penalty up to 20% of their cargo value. So this seems to be Iran setting the terms. Meanwhile, Reuters reported earlier in the day that Iran was seeking fees of 5% to 7% of the cargo price for ships transiting Hormuz, while Oman was discussing 3%. Either of these would be higher than the reported ad hoc payments Iran had received from ships back in the spring. The big doubt is whether such terms would be acceptable to the US. While prohibition of US-owned vessels might have a negligible practical impact, the US has been resistant to an outcome that would fall short of free movement through Hormuz. That said, Trump’s limited comments last night shied away from any escalation, saying that things are “moving along good”.

The renewed rise in energy prices meant that investors dialed up inflation expectations again, with the US 1yr inflation swap rising by +11.0bps, its largest daily increase in four weeks. Meanwhile, the amount of Fed hikes priced by year-end rose by +3.0bps to 34bps. In turn, US treasury yields climbed higher yesterday, with 2, 10, and 30yr +6.6bps, +6.6bps and +5.6bps higher respectively. Real yields also rebounded, with the 5yr real yield up +3.5bps. And with yields and oil moving higher, the dollar (+0.25%) had its best day in two weeks. 

Stronger data and continued labour market resilience also contributed to the move in rates. That included initial jobless claims for the week ending Aug 1, which were a little lower than expected at 199k (vs 205k est), and the latest job cut announcements from Challenger, Gray & Christmas, which fell to its lowest level in two years at 33,429 vs 45,849 the prior month. Finally, yesterday’s US non-farm productivity for Q2 (+1.4% vs +0.6% est) was also stronger than expected with upward revisions (from 0.3% to 0.8% for Q1).  
Prior to the Oman-Iran deal news as well, markets got a fresh boost of hawkish sentiment after the FT reported that Warsh would be prepared to raise interest rates at next month’s meeting if inflation readings released in the coming weeks are hot. Citing sources close to Warsh, the article also argued that Warsh would use the policy rate as the main policy tool, consistent with a view that the balance sheet is not a feasible tool over the immediate policy-relevant horizon. On an interesting side note, the appearance of this article suggests that the FT could become the home of Fed sources going forward with the WSJ seemingly out of favour. Bessant's extraordinary social media posts critical of their Chief Economics Correspondent Nick Timiraos on Wednesday perhaps set the scene for the passing of the baton. 

Turning to equities now, the S&P 500 (-0.18%) dipped on the news of the details of the Oman-Iran deal. Tech indices saw mixed moves, with the Nasdaq Composite (-0.06%) slipping but the Mag-7 (+0.24%) and the Philly semiconductor index (+0.33%) managing to advance. Energy (+1.59%) was the only sector in the S&P 500 to post a clear advance, while more energy-exposed sectors including industrials (-0.83%) and materials (-0.79%) struggled. 

In European markets, which closed shortly before the Fars News report, equities put in a more positive performance in comparison to US counterparts. The Stoxx 600 (+0.16%) and CAC 40 (+0.35%) posted fresh highs, while the DAX (+0.05%) also crept up. Only the FTSE 100 (-0.19%) underperformed. Similarly in rates, while the rise in inflation pricing was modest (+0.9bps for 5yr), nominal yields did move higher. Gilts led the rise, with the  10yr gilt yield up +4.8bps, followed by OATs (+3.3bps) and bunds (+2.9bps). 

Asian equity markets are generally weaker this morning with the exception of Chinese related markets. The KOSPI (-1.10%) is trading lower again, extending its weekly losses to more than 6% and putting the index on course for a seventh consecutive weekly decline. The Nikkei (-0.55%) is also moving lower, although it remains on track to post a weekly gain of over +1.0%. In contrast, mainland Chinese equities are outperforming, with the CSI 300 (+0.83%) and the Shanghai Composite (+0.50%) both advancing. Hong Kong's Hang Seng (+0.15%) is trading modestly higher, while the S&P/ASX 200 (-0.03%) is struggling for direction. US equity futures and Treasuries are fairly flat this morning. 

Earlier this morning, data showed that Japanese household spending unexpectedly contracted by 3.3% year-over-year in June, compared with market expectations for a 0.9% increase. This marked the seventh consecutive monthly decline, with spending likely impacted by adverse weather conditions, including multiple typhoons, heavier-than-usual rainfall, and below-average temperatures. If Japan could send some of that weather our way we would be very grateful. 

To the day ahead now, we’ll receive the US July jobs report. Other data releases include NY Fed 1-yr inflation expectations, June consumer credit. In Europe, we’ll also receive Germany’s June trade balance and industrial production, France June current account balance, trade balance. The Fed’s Barkin will also speak today.