Brent crude jumped 4.6% on the Iran-Oman Strait of Hormuz reopening deal. Friday's US jobs report is the next catalyst, with economists expecting 80,000 jobs.
Iran and Oman have agreed to reopen the Strait of Hormuz, ending weeks of talks. The deal bans ships from the US and Israel. Ships from countries deemed hostile by Tehran are also barred. Under the reported arrangement, Iran will manage incoming vessels and Oman will handle outgoing ships. The US blockade remains in place for now. Brent crude jumped 4.6% on the news, punching back above its 200-day moving average near $81.06.
Oil's rally added to the repricing in US Treasuries. The front end sold off. Traders raised the odds of a hawkish Fed. Markets now assign roughly a 30% probability to a rate hike at the September meeting, rising to about 90% by year-end. The benchmark 10-year yield sat at 4.68% on Thursday, with the 30-year near 5.2%.
Equities took a modest hit. The S&P 500 closed slightly lower, with breadth showing more than 300 names down and only about 190 up. The energy sector (XLE) gained 1.5% on the oil rally.
Attention now shifts to the July US nonfarm payrolls report due Friday at 12:30 GMT. The data calendar has been mixed. Monday's ISM manufacturing PMI came in stronger than expected, with production rising and employment returning to growth. The prices component eased. Tuesday's June JOLTS report showed fewer job openings and a modest increase in hiring. The quits rate was unchanged. Wednesday brought the ADP employment report, which indicated a deceleration in private-sector job growth, with the service sector doing most of the heavy lifting. The ISM services PMI, also out Wednesday, showed the headline barely budging. The employment component slid into contractionary territory, confirming the ADP data.
Economists expect the US economy added 80,000 jobs in July, with the whisper number around 79,000. The estimate range stretches from 140,000 to 10,000. Unemployment is seen holding at 4.2%, with a range of 4.1% to 4.3%. June's print showed a tick lower to 4.2%. The reason was a drop in participation: 720,000 people left the labour force, including 500,000 employed workers and 220,000 job seekers who stopped searching.
Aaron Hill, chief market analyst at FP Markets, said a soft jobs report would likely pare back Fed rate-hike bets and weigh on the dollar. He does not see a solid print tempting the Fed to hike at this point. The majority of focus may then shift to the inflation side of the mandate. Next week's July CPI data could be the more important data point for how the Fed reacts in September, Hill said.
The political backdrop adds another layer. The US is roughly 90 days away from the midterms. President Trump remains stuck in a conflict 60% of the public disapproves of, with inflation still elevated. Hill said the deal between Iran and Oman is "uncharted waters" and the US view on the blockade and nuclear negotiations remains unclear.
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