Weekly Brief

Last Week

Two stories set the tone: progress toward reopening the Strait of Hormuz, and a July jobs report that came in far weaker than anyone expected. On August 5, Iranian and Omani negotiators were reported to have settled on a draft text to reopen the strait, with a 60-day interim arrangement involving the United States on the table; under the draft, vessels would transit toll-free, inbound traffic using a northern lane and outbound a southern one. Crude sold off on the news: September WTI hit a three-week low and September RBOB gasoline a roughly five-month low, with an unexpected 2.48 million-barrel build in EIA inventories adding to the pressure. Cheaper energy took some of the heat out of the inflation debate that has dogged the market all year, and with it the case for another Fed hike.

Friday's July payrolls showed a decline of 23,000 jobs against expectations for an 80,000 gain, the first contraction in five months, while May and June were revised down by a combined 103,000. The unemployment rate slipped to 4.1% from 4.2%, but only because 264,000 people left the labor force; participation fell to 61.4%, a five-and-a-half-year low, and average hourly earnings growth cooled to 3.2% year over year from 3.4%. Odds of a September rate hike fell to 44% from 57% after the release, and with June having added 57,000 jobs, this marks the third straight summer of unexpected labor-market softness.