Oil prices surged on Friday, fueled by escalating tensions in the Middle East and growing uncertainty ahead of the crucial US jobs report set to be released later today. West Texas Intermediate (WTI) crude extended gains, rising to a one-month high after surging more than 5% on Thursday, while global benchmark Brent also followed suit. Market nerves were frayed by unexpected remarks from President Joe Biden, who said the US was considering whether to support potential Israeli strikes on Iranian oil facilities.
Investors are increasingly anxious that an Israeli attack on critical Iranian assets could lead to broader conflict, potentially disrupting global energy shipments. These concerns were compounded by reports that Israel bombed over a dozen Hezbollah targets in Beirut on Thursday, raising fears of a wider escalation in the region.
The oil rally comes as traders await fresh data on the US labor market, which could influence the Federal Reserve's next move on interest rates. The Nonfarm Payrolls report is expected to show steady job growth, with payrolls rising by 150,000 and the unemployment rate holding at 4.2% for September. The results could either reinforce or challenge the market's current expectations of the Fed’s path—potentially leading to more volatility depending on whether the numbers surprise in either direction.
The US Dollar held steady in early trading, supported by a fourth consecutive day of gains. The 10-year Treasury yield climbed to 3.85%, its highest level since early September, reflecting concerns over the broader economic impact of the ongoing turmoil. Meanwhile, the yen strengthened and the British pound stabilized after falling sharply on Thursday due to signs that the Bank of England could pursue more aggressive rate cuts.
In the equity markets, sentiment remained mixed. Futures in Japan showed little movement, while those for Australia and Hong Kong edged lower amid regional market uncertainties. China's mainland markets were closed for a holiday, leaving trading volumes subdued. In the US, the S&P 500 and Nasdaq 100 both slipped on Thursday, though the energy sector outperformed as oil prices rallied.
Economic data released earlier this week has shown signs of resilience in the US economy, with the Institute for Supply Management’s (ISM) services index hitting its highest level since February 2023, beating expectations. Meanwhile, jobless claims rose slightly last week but remained at levels that suggest a relatively stable labor market. JPMorgan's Abiel Reinhart noted that the low level of initial claims remains a good sign for the job market, indicating limited layoffs despite broader concerns.
Against this backdrop, Kallum Pickering, chief economist at Peel Hunt, highlighted on Bloomberg TV that if the unemployment rate rises, markets could shift back toward expecting more aggressive rate cuts—a move that would depend heavily on how the Fed interprets today’s jobs data.
With oil prices surging, geopolitical tensions escalating, and the US labor market data on the horizon, investors face a day of high stakes and potential volatility. The outcome of the jobs report could tip the scales, determining whether the Federal Reserve adjusts its rate path or maintains its current course, while any further conflict in the Middle East could lead to more upheaval in global energy markets. For now, traders are bracing for a turbulent end to the week, with all eyes on the numbers and the news from the Middle East.
