Oil, yen, and jobs shape market tone

Key developments

• Oil risk still sets the tone: US-Iran tensions remain the main market driver, even as rhetoric from Washington reduced fears of a prolonged conflict. Brent extended its rally yesterday but has eased slightly this morning, suggesting investors are trimming the worst-case risk premium rather than dismissing it.
• Risk appetite recovers: US equities broke their recent losing streak, with gains across the S&P 500, Nasdaq and Dow. Asian markets followed higher, helped by a modest pullback in Treasury yields after several sessions of pressure.
• Bonds find relief: The 10-year Treasury yield slipped to 4.78%, its first fall in six sessions, while the two-year also eased. The move looks more like a pause than a reversal, with oil-driven inflation risks still complicating the rates outlook.
• Yen strength raises intervention chatter: The dollar index edged lower, led by a sharp rally in the yen. Further yen gains this morning have revived speculation about possible Bank of Japan intervention, even as sterling softened and the euro was little changed.
• Bank of Canada turns more cautious: The Bank of Canada held rates at 2.25%, as expected, but the statement was notably more hawkish. Disruption risks around the Strait of Hormuz have pushed inflation concerns back up the policy agenda.
• US jobs cool further: ADP reported just 38,000 new jobs in August, below expectations and the weakest reading this year. Markets will now look to payrolls for confirmation of labour-market softening.

Today’s major data

• US jobless claims: Initial claims are due at 16:30, with consensus at 205,000. A weaker print would reinforce the softer labour-market signal from ADP.
• Turkey inflation: August CPI is due at 11:00, with annual inflation expected at 31.6%. Any upside surprise would keep pressure on policy credibility and real rates.