Weak Jobs Data Hits Dollar as Hormuz Risks Persist (10 – 14 August)

Global markets entered the week as investors reassessed the Federal Reserve's outlook after a surprisingly weak US employment report signaled further deterioration in labor market conditions. The Dollar Index fell toward a two-month low, while gold and silver held onto strong weekly gains as expectations for a September Fed rate hike dropped sharply. At the same time, uncertainty surrounding the Strait of Hormuz continued to influence oil prices and global inflation expectations, with Iran and Oman reporting progress toward a transit agreement but no broader resolution yet reached.

The macro backdrop has shifted toward softer US rate expectations. July nonfarm payrolls unexpectedly declined by 23,000, while previous months were revised sharply lower, reinforcing concerns that the labor market is losing momentum. September Fed rate hike odds fell to 44% from 67%. However, renewed strength in oil prices and unresolved tensions around Hormuz continue to create upside risks for inflation. European bond yields eased on hopes of lower energy prices, while Japanese markets remain focused on the possibility of further Bank of Japan tightening.

Market Drivers & Catalysts

• US Labor Market Weakens: The US economy unexpectedly lost 23,000 jobs in July, compared with forecasts for an 80,000 increase, while May and June employment figures were revised lower by a combined 103,000.
• Fed Rate Hike Bets Fall: Weak employment data pushed the probability of a September Federal Reserve rate hike down to 44% from 67%, supporting precious metals and weighing on the dollar.
• Hormuz Negotiations Continue: Iran said talks with Oman over a shipping arrangement were approaching an agreement, although reopening the Strait would not happen immediately, and Tehran denied holding direct negotiations with the United States.
• Oil Supply Risks Persist: Brent remained above $84 per barrel as attacks continued in the region, including a claimed Houthi strike on Saudi Arabia's Jazan refinery and an attack on an ADNOC tanker in the Strait of Hormuz.
• Central Bank Outlook: Markets continue to monitor a potential September Bank of Japan rate hike, while the ECB is expected to deliver one more increase by year-end.

Fixed Income

• US 10-Year Treasury Note Yield: The US 10-year Treasury yield rose to 4.68% on August 10, gaining 0.02 percentage points from the previous session. The yield has increased 0.06 points over the past month and stands 0.39 points higher year-on-year, based on over-the-counter interbank quotations for the benchmark maturity.
• UK 10-Year Bond Yield: The UK 10-year gilt yield held near 4.95%, remaining above Tuesday's three-week low of 4.891%. Rising oil prices revived concerns over inflation and possible monetary tightening as uncertainty surrounding the Strait of Hormuz persisted. Despite the rebound, gilt yields remained around 9 basis points lower for the week on hopes that the strait may eventually reopen. The Bank of England kept rates unchanged in July, while Governor Andrew Bailey said disinflation continues despite external risks.
• Japan 10-Year Government Bond Yield: Japan's 10-year government bond yield climbed to around 2.78%, ending a two-session decline as higher oil prices renewed inflation concerns. Household spending fell 3.3% in June, sharply missing expectations for a 1% increase. Markets continue to watch for a potential September Bank of Japan hike after July's hold, with meeting minutes showing that policymakers expect broader corporate price increases to support inflation.
• Germany 10-Year Bund Yield: Germany's 10-year Bund yield traded near 3.12%, falling more than 8 basis points over the week as optimism surrounding a possible Middle East breakthrough supported expectations for lower oil prices. Iran reported progress toward a Hormuz shipping arrangement with Oman, although a broader US-Iran agreement remains uncertain. Markets continue to price one additional ECB rate hike by year-end, while German factory orders exceeded expectations in June.

Commodities

Gold remained above $4,300 per ounce, holding onto a weekly surge of more than 7% after the unexpected contraction in US employment sharply reduced expectations for further Federal Reserve tightening. July payrolls declined by 23,000, following a downwardly revised June figure, while September rate hike odds dropped to 44% from 67%. Gold maintained its gains despite higher oil prices and uncertainty over efforts to reopen the Strait of Hormuz, with Iran denying that direct talks with the United States were taking place.

Silver traded near $64 per ounce, maintaining a weekly advance of more than 10% following the unexpectedly weak US employment report. July payrolls fell 23,000, while downward revisions to June reinforced signs of labor market weakness. September Fed rate hike odds dropped to 44% from 67%, supporting non-yielding assets. Silver remained firm despite renewed gains in oil prices and continued uncertainty surrounding Hormuz negotiations.

Currencies

• U.S. Dollar Index (DXY): The Dollar Index fell 0.5% to 99.4, approaching a two-month low as weaker US employment data reduced expectations for near-term Federal Reserve tightening. July payrolls contracted by 23,000, while unemployment unexpectedly eased to 4.1% despite a continued decline in labor force participation. Investors reduced September hike expectations as uncertainty surrounding Iran and the Strait of Hormuz persisted.
• Euro: The euro climbed above $1.157, reaching its highest level since June 16 as disappointing US labor figures pressured the dollar. Falling oil prices also supported expectations that Eurozone inflation pressures could ease. Investors continued to monitor negotiations over the Strait of Hormuz. The ECB kept interest rates unchanged in July after delivering a 25 basis point hike in June, its first increase in three years.
• British Pound: Sterling rose to around $1.350, its highest level since July 15, as the weaker US employment report reduced expectations for a September Fed rate hike. Lower oil prices also helped ease concerns over UK inflation. Governor Andrew Bailey maintained that disinflation remains on track despite external risks, supporting expectations for a gradual Bank of England policy approach.
• Japanese Yen: The yen weakened beyond 158 per dollar, reversing gains achieved following the joint Tokyo-Washington currency intervention. The move raised doubts over the lasting effectiveness of intervention as interest rate differentials, fiscal concerns, and energy costs continued to pressure the currency. Household spending declined 3.3% in June, compared with forecasts for 1% growth, while markets remain focused on the possibility of a September BOJ rate increase.

Economic Data Highlights

• US Nonfarm Payrolls (July): The US economy unexpectedly lost 23,000 jobs, compared with a downwardly revised 20,000 increase in June and forecasts for an 80,000 gain. Employment figures for May and June were revised down by a combined 103,000. Local government education employment dropped 50,000, retail trade lost 19,000, and financial activities declined by 14,000. Health care added 22,000 jobs, while most other sectors showed little change.
• US Unemployment Rate (July): The unemployment rate declined to 4.1% from 4.2%, beating expectations, although the improvement largely reflected people leaving the workforce. The number of unemployed people declined by 178,000 to 6.916 million, while employment fell 87,000 to 162.177 million. The labor force contracted by 264,000 to 169.094 million, pushing participation down to 61.4%, its lowest level since early 2021. The employment rate fell to 58.9%, also a multi-year low, while the broader U-6 rate remained at 7.9%.
• US Job Openings (June): JOLTS job openings declined by 178,000 to 7.359 million, below expectations of 7.40 million. Healthcare vacancies fell 147,000, leisure and hospitality declined 86,000, wholesale trade dropped 74,000, and professional and business services fell 71,000. Openings increased by 97,000 in transportation, warehousing, and utilities and by 39,000 in the federal government. Hiring remained near 5.3 million, while separations were broadly unchanged at 5.4 million.
• China Trade Balance (July): China's trade surplus widened to $112.5 billion, compared with $97.70 billion a year earlier and above expectations of $107 billion. Exports jumped 23.9% year-on-year to $397.85 billion, supported by AI-related technology demand and accelerated shipments ahead of new US tariffs of 12.5%, replacing the expired 10% levy. Semiconductor exports nearly doubled, while overall high-tech exports increased 40.7%. Imports rose 27.7% to $285.35 billion, slowing from June's 36% increase. China's trade surplus with the United States narrowed to $28.03 billion from $28.9 billion.

Macro Calendar Highlights

• US Consumer Price Index (CPI)
• US Producer Price Index (PPI)
• US Retail Sales
• Manufacturing and Trade Inventories and Sales