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Update: US Equity Indexes Rise as Bets Favoring Fed Pause Rise After Nonfarm Payrolls Unexpectedly Decline
(Updates with index/price moves, analyst comments and geopolitical news from the first paragraph.)US equity indexes advanced after a surprise decline in nonfarm payrolls increased the odds for a monetary policy pause in September, while the Iran-Oman agreement on the Strait of Hormuz remained on the horizon.The Nasdaq Composite climbed 1.3% to 26,690.62, with the S&P 500 up 0.6% to 7,757.64 and the Dow Jones Industrial Average rising 0.3% to 54,036.93 at the close Friday. Materials, consumer discretionary and technology topped gainers in a broadly positive market. Energy led decliners.The July employment report showed nonfarm payrolls fell by 23,000, compared with the 80,000 jobs increase expected in a Bloomberg-compiled poll. Private payrolls rose by 30,000 in July, the same as in June but below the 82,000 expected. Government sector jobs decreased by 53,000.The unemployment rate fell to 4.1% in July from 4.2% in June, compared with the 4.2% expected, after the labor force participation rate declined to 61.4% from 61.5% in June and the labor force contracted.Looking past the government decline, the increase in private payrolls was below the lowest forecast, Jefferies Chief US Economist Thomas Simons said in a note. Large declines in leisure and hospitality, retail trade, and financial services offset strength in construction, healthcare and social assistance, Simons said, adding that the next move from the Federal Reserve is an interest rate cut, and most likely in December.The probability of the Federal Reserve keeping its target rate unchanged at 3.5%-3.75% in September surged to 56% on Friday from 45% a day ago and 33% a week ago, according to the CME FedWatch tool.US Treasury yields fell, with the 10-year yield down 2.7 basis points to 4.64% and the two-year lower by 4.8 basis points to 4.20%.Gold futures jumped 2.5% to $4,407.8, and silver futures surged 3.7% to $63.91.Iranian lawmakers are debating the wording of a proposed deal with Oman on the Strait of Hormuz, with US President Donald Trump insisting an agreement is getting closer, Bloomberg reported. Iran's Deputy Foreign Minister Kazem Gharibabadi said earlier this week that an understanding with Oman had been reached "in principle," and state TV cited one lawmaker on Friday as saying the final text and details of an agreement with Muscat will be announced "soon," according to the news report.Iran's Parliament has been considering a law to bar US ships from the Strait as part of the Iran-Oman deal, according to a note from Macquarie. Other details of the agreement include a demand for compensation from "hostile countries," a proposed ban on cargo related to Israel, and a fee structure covering services such as insurance and environmental costs."None of this is likely to be to the US's liking, and therefore there remains the possibility that attacks on Iran will resume," Thierry Wizman, global foreign exchange and rates strategist at Macquarie, said in the note.The Saudi crown prince, Turkish president, and Pakistani prime minister have signed a joint defense deal in Mecca stating that "any armed attack against any one of the three states shall be regarded as an attack against them all," Al Jazeera reported. Pakistan is one of the few countries in the world with nuclear weapons.Saudi Arabia expects imminent coordinated attacks from Iraqi militias north of the Gulf state and from Yemen's Houthis from the south under the supervision of Iran's Islamic Revolutionary Guard Corps, a senior Saudi official told Reuters.The front-month US West Texas Intermediate crude oil slipped 0.4% to $76.95 a barrel, and global benchmark North Sea Brent fell 0.6% to $81.99 a barrel.In company news, Airbnb (ABNB) reported stronger Q2 bookings as product changes contributed to higher revenue, RBC Capital Markets said in a Friday note. Shares surged 17%, the biggest gainer on the S&P 500 and the Nasdaq.
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