Markets risk on amid Middle East calm and chip rally – Canada jobs eyed

It has been quite the week. After a couple of days of choppy markets – driven by concerns over the Middle East and AI jitters – things seem to be calming down. This is due to ongoing US-Iran talks and Micron’s move to increase US plant spending to US$250 billion (up US$50 billion from its prior commitment).

Chips lead equities higher

US equities caught a bid on Thursday, with Asia following suit. Both the Nasdaq Composite and Nasdaq 100 finished up more than 1%, while the S&P 500 closed 0.8% higher.

One of the main stories right now is SK Hynix, which raised an eye-watering US$26 billion in its American depositary receipt offering – the largest ever US first-time share sale by a foreign company. As a result, Asia-Pac stocks rose across the board in overnight trading, sending Japan’s Nikkei 225 and South Korea’s KOSPI up around 3%.

Calm but unresolved in the Gulf

Back in the Middle East, the past few days have seen the US and Iran launch strikes, each blaming the other for breaching the MoU. While things have calmed – and the US has recently stated that technical talks remain ongoing – this is far from over. Disagreements over Iran’s desire to toll its shipping lanes through the Strait of Hormuz, Iran’s nuclear programme, and, of course, frozen Iranian assets remain unresolved.

Oil benchmarks rallied on Tuesday and Wednesday, but pulled back yesterday on the news. Frankly, despite the moves, the market has become all too familiar with the escalation and de-escalation. While volatility in oil and bonds was noteworthy this week, cross-asset performance suggests that traders are seemingly numb to this cycle.

Canadian jobs data in focus

Today’s data slate focusses on the June Canadian employment report. The unemployment rate is expected to remain unchanged at 6.6% (estimate range: 6.5-6.8%), while job growth is expected to rise to 10k, down from nearly 90k in May (estimate range: 4k-35k).

While this is the last major risk event before the BoC meets this month, I am unsure where the edge lies in this report. You will recall that BoC Governor Tiff Macklem explicitly warned the markets not to overreact to a single data point, so regardless of whether we get a beat or a miss, the BoC could look through this print. Additionally, Macklem recently confirmed that the BoC is in a holding pattern, noting that policy is at the bottom end of the neutral range, where it aims to balance above-forecast inflation with soft growth.

Year-end pricing also suggests the BoC will likely remain on hold this year, with 12 bps of tightening implied – down from 35 bps just a month ago. While a hot (soft) jobs report could open the door to a short-term scalp, it is unlikely to be enough to suggest a hike (cut), given Macklem’s comments. To be clear, for a beat, I would want to see employment above 25k and unemployment at 6.5% or below, while for a miss, I would prefer employment at 5k or lower and unemployment at 6.7% or above.