(Aug 7): Stocks in Asia looked set to edge lower Friday after a resurgence in geopolitical tensions jolted global markets, sending equities and bonds lower as oil jumped, reviving inflation concerns ahead of the US jobs report.
Equity-index futures pointed to modest declines in Japan, Hong Kong and Australia, while contracts for South Korea edged higher. US equity futures were little changed after the S&P 500 fell 0.2% on Thursday, leaving the benchmark on course for a second consecutive decline. The tech-heavy Nasdaq 100 dropped 0.4%.
US crude rose over 1% on Friday as escalating tensions in the Middle East and lack of clarity on a deal to revive the Strait of Hormuz drove the commodity higher. Higher energy prices revived concerns the Federal Reserve may need to keep interest rates higher for longer, sending the 10-year Treasury yield up seven basis points to 4.68%. The dollar posted its biggest gain in two weeks, while gold held near US$4,240 an ounce.
Investors now turn their attention to Friday’s US employment report for fresh clues on the Fed’s policy path. A stronger-than-expected payrolls print may reinforce expectations that interest rates will remain higher for longer, while any further escalation in Middle East tensions risks keeping energy prices elevated and adding another source of volatility for global markets.
“Near-term risks remain, especially if US data stay firm, oil prices keep inflation concerns alive, or markets continue to price in a more hawkish Federal Reserve rate path,” said Ulrike Hoffmann-Burchardi at UBS Chief Investment Office.
Iran will seek to bar US and Israeli ships from the Strait of Hormuz and require compensation from countries it considers hostile before allowing passage, according to local media reports on a proposed Iran-Oman agreement to manage the strategic waterway.
The reports come as officials in both Washington and Tehran have signaled that an accord may be close. President Donald Trump, who recently stepped back from threats to resume military strikes on Iran, said Thursday negotiations were “going fine” and that he was involved, but declined to say whether a deal had been reached.
Separately, Fars news agency said Iranian naval forces had struck “hostile targets” at the entrance to the strait.
“Wall Street is reversing again from sharp recent gains, as a lack of clarity over the Strait of Hormuz has investors questioning whether the strong rally at the start of the week was justified by perceived improvements in geopolitical negotiations,” said José Torres, senior economist at Interactive Brokers.
US economic data released Thursday highlighted the resilience of the US labour market, leaving inflation as the key variable for the Fed’s September meeting. Initial jobless claims remained below 200,000 for a third consecutive week, while a separate report showed labour productivity accelerated by more than expected in the second quarter as companies worked to offset higher costs.
Attention now shifts to Friday’s payrolls report. Economists surveyed by Bloomberg expect employers added 80,000 jobs in July, following a weaker-than-expected gain of 57,000 in June. The report is expected to provide the clearest signal yet on whether the labor market is cooling enough to support expectations for Fed easing later this year.
“Friday’s jobs report is of greater importance for markets given how fast this stock market has rallied over the past week, and ultimately we will need to see a number that is not too hot and not too cold in order for the market to keep grinding higher,” said Clark Bellin at Bellwether Wealth.
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