NFP, Warsh Rate Path and the Iran Strait Risk to Close the Week

The week closes with a US jobs report that lands in an unusual spot: the labour market is the one corner of the economy the Federal Reserve does not seem worried about, and the person setting policy communication has told markets not to expect guidance. Nonfarm payrolls are forecast at +70k, the unemployment rate at 4.2%, and average hourly earnings at +0.3% m/m SA. The data will be read against a Fed chair who, according to the Financial Times, will raise rates in September if inflation prints stay hot and markets price in higher borrowing costs.

Chair Warsh's stance, confirmed by people familiar with his thinking, is to offer no forward guidance. He is expected to lay out the intellectual case for that approach at Jackson Hole on August 22. For markets, the practical effect is that every inflation release carries more weight, and the NFP print today matters less for what it says about jobs and more for what it implies about the inflation path.

That is the setup into the afternoon release. In the meantime, the labour market data that has already crossed the tape points to a cooling but stable picture. The July Challenger Report showed 33,429 announced layoffs, the lowest level since July 2024. AI-linked layoffs now account for up to a third of the total. Initial and continuing jobless claims stayed little changed at low levels, with continuing claims at 1.801m for the week ending July 25. Productivity growth picked up to 1.4% q/q AR in the second quarter from 0.3% in the first, which held unit labour cost growth to 1.3% q/q AR. The Fed will note that labour costs are not feeding inflation. Productivity is still running at historically normal levels, so there is no sign yet of an AI-driven acceleration.

Oil and the Strait of Hormuz

The other dominant theme is the Strait of Hormuz. Brent crude moved above USD83/bbl, erasing most of the week's earlier decline, after reports that Iran struck what it described as hostile targets in the strait. A draft Iran-Oman proposal under review in Iran's parliament would impose stricter conditions on commercial shipping than markets had anticipated, including limits on US and Israeli vessels, compensation requirements for countries deemed hostile, and penalties of 20% of cargo value for violations. The oil move is a supply-risk premium rather than a demand story, and it is showing up in currencies and rates: USD/JPY edged above 158, EUR/USD held within the 1.1500-1.1550 range, and Treasury and Bund yields moved higher, particularly in the belly of the curve.

Sweden's Inflation Surprise

Sweden provided the day's sharpest data surprise. July flash inflation came in well above forecasts, with core inflation at 0.6% y/y against consensus of 0.24%, CPIF at 0.75% y/y against 0.49%, and CPI at 0.21% y/y against 0.03%. The flash release gives limited detail, but the upside was driven by goods prices, likely reflecting pass-through from higher commodity prices during the spring. Swedish rates sold off after the print. The Riksbank will have to decide whether this is a one-off or the start of a firmer trend.