The dollar rose again yesterday, while sterling fell. Today, all eyes are on the September US jobs report due to ongoing geopolitical risks. Geopolitical concerns in the Middle East are still a major focus, with President Biden’s comments about a potential Israeli strike on Iranian oil infrastructure causing a brief risk-off move. This uncertainty has led to a rise in crude prices, as the market prices in the geopolitical risk premium.
Stocks also faced pressure due to these tensions, with the S&P and Nasdaq ending the day in the red. Investors are quick to sell into intraday rallies, showing ongoing nervousness in the market. In the equity derivatives space, there is an increased demand for downside protection through options contracts.
On a positive note, the ISM services PMI report in the US exceeded expectations, pointing to strong economic expansion. This, along with the geopolitical risks, has led to a fourth straight daily gain for the dollar.
BoE Governor Bailey’s dovish comments on rate cuts also impacted the pound, causing it to decline significantly. The market interpreted his statements as a signal for faster rate cuts, despite the conditional nature of his remarks.
Looking ahead, all eyes are on the September US labor market report. The headline nonfarm payrolls are expected to rise modestly, with mixed leading indicators for the jobs print. Unemployment is projected to hold steady, while earnings growth is expected to remain contained.
The labor market has become a key factor in future policy shifts, with a soft set of data potentially leading to a second straight 50bp cut at the November meeting. Market reaction will likely focus on the macroeconomic picture portrayed by the report, rather than immediate policy implications.
Overall, market sentiment remains cautious due to ongoing geopolitical tensions, with investors managing risk and hedging exposures into the weekend. The uncertainty in the global landscape continues to impact financial markets, highlighting the importance of monitoring both economic data and geopolitical developments in the coming days.
