Blowout US Jobs Lift Hike Bets as Oil Rises (7 - 11 September)

Global markets entered the week with renewed expectations for Federal Reserve tightening after a surprisingly strong US employment report. Nonfarm payrolls increased by 162,000 in August, nearly three times the 56,000 forecast, while unemployment remained at 4.1%. The Dollar Index recovered to 99.3 and Treasury yields moved higher as markets raised the probability of a September Fed hike to nearly 60%.

Middle East tensions remained another major market driver. Brent crude approached $96 after gaining more than 8% over the week as Iran and the US exchanged missile strikes and tensions surrounding Hormuz shipping continued. Meanwhile, Eurozone inflation accelerated to 3.3%, strengthening expectations for an ECB hike, while markets also anticipate further tightening from the BOJ and BoE.

Market Drivers & Catalysts

• US Payrolls Surprise: Nonfarm payrolls increased 162,000 in August, well above expectations of 56,000, while June and July figures were revised higher by a combined 55,000.
• Fed Hike Bets Increase: Markets raised the probability of a September Fed hike to nearly 60% following the stronger employment report.
• ECB Tightening Ahead: Eurozone inflation accelerated to 3.3%, with markets fully pricing a 25-basis-point ECB hike and nearly 100% odds of the deposit rate reaching 3% by June 2027.
• Middle East Risks Lift Oil: Brent gained more than 8% over the week as US-Iran hostilities continued and negotiations over Hormuz shipping remained stalled.
• BOJ Expectations Strengthen: Markets expect a 25-basis-point BOJ hike in September, followed by another increase in December.

Fixed Income

• US 10-Year Treasury Note Yield: The US 10-year Treasury yield rose nearly 3 basis points to 4.79%, reversing declines from the previous two sessions after the stronger employment report. August payrolls increased 162,000 against forecasts of 56,000, strengthening expectations for a September Fed hike. Markets remain divided, however, following hawkish remarks from Warsh and more dovish comments from Waller ahead of next week’s inflation data.
• UK 10-Year Bond Yield: The UK 10-year gilt yield held slightly below 5.15%, easing from recent 19-year highs. Markets fully price in a BoE hike by year-end and another by March 2027, although lower oil prices offered some relief from inflation concerns. BoE policymaker Huw Pill argued that acting earlier could reduce the need for more aggressive tightening later.
• Japan 10-Year Government Bond Yield: Japan’s 10-year bond yield declined toward 2.9% as the global bond selloff eased and a successful 30-year JGB auction reduced market concerns. Markets expect a quarter-point BOJ hike this month followed by another in December. BOJ policymaker Takata raised the possibility of larger or consecutive hikes, while Governor Ueda highlighted upside inflation risks.
• Germany 10-Year Bund Yield: Germany’s 10-year Bund yield stabilized around 3.35% ahead of this week’s ECB meeting. Markets fully price in a 25-basis-point ECB hike, while expectations for the deposit rate to reach 3% by June 2027 are close to 100%. German factory orders also increased 2.5% in July, exceeding expectations.

Commodities

Gold fell around 1% to $4,430 per ounce as strong US employment figures lifted the dollar and Fed tightening expectations. Nonfarm payrolls rose 162,000 in August, unemployment remained at 4.1%, and wage growth eased to 3.1%. Markets now assign nearly a 60% probability to a September hike.

Silver dropped around 3% to below $65 per ounce as the stronger dollar and rising interest rate expectations pressured rate-sensitive precious metals. The stronger payroll report pushed September Fed hike expectations toward 60%.

Currencies

• U.S. Dollar Index (DXY): The Dollar Index rose to 99.3, recovering from a two-week low after the strong US employment report. August payrolls jumped 162,000 against expectations of 56,000, while unemployment remained at 4.1%. Markets now price nearly a 60% probability of a September Fed hike.
• Euro: The euro weakened below $1.16 as the US employment surprise strengthened the dollar. Attention now turns to the ECB’s September 10 meeting, with markets fully pricing a 25-basis-point hike. German factory orders increased 2.5% in July, adding to the firmer European backdrop.
• British Pound: Sterling weakened toward $1.35, near a two-week low, as higher Fed rate expectations supported the dollar. UK markets fully price in a BoE hike by year-end, although policymakers are expected to keep rates unchanged in September.
• Japanese Yen: The yen traded around 156 per dollar after gaining roughly 2.5% over the week, its strongest weekly performance since July’s joint intervention. No new official intervention was confirmed, although traders speculated that authorities conducted a rate check. Markets expect the BOJ to hike in September and December.

Economic Data Highlights

• US Nonfarm Payrolls: The economy added 162,000 jobs in August, the most in five months, compared with expectations of 56,000. Food services added 59,000, local government education added 42,000, manufacturing added 16,000, and healthcare added 13,000, while information employment fell by 23,000.
• US Unemployment: The unemployment rate remained at 4.1%. Employment increased by 569,000 to 162.75 million, while labor force participation rose to 61.6% from 61.4%. The U-6 unemployment rate declined to 7.7% from 7.9%.
• Eurozone Inflation: Annual inflation accelerated to 3.3% from 2.9%, its highest since September 2023. Energy inflation surged to 14.3%, while services inflation eased to 3.0% and core inflation declined to 2.4%.
• US Job Openings: JOLTS openings increased by 89,000 to 7.271 million in July, below expectations of 7.30 million. Hires and separations remained unchanged at approximately 5.1 million.

Macro Calendar Highlights

• US NFIB Small Business Optimism.
• US Producer Price Index (PPI)
• US Core PPI
• ECB Interest Rate Decision
• US Consumer Price Index (CPI)
• US Core CPI
• Initial Jobless Claims
• US University of Michigan Consumer Sentiment
• US Inflation Expectations