Weak U.S. Jobs Report Sparks Market Rebound Amid Geopolitical Tensions

The U.S. stock market faced pressure early in the week as geopolitical tensions in the Strait of Hormuz pushed oil prices and Treasury yields to multi-year highs. President Trump’s rejection of Iran’s proposal heightened inflation concerns, while hawkish comments from Federal Reserve officials kept expectations of further rate hikes alive. However, a softer-than-expected core PCE reading midweek provided temporary relief, and Friday’s weak jobs report significantly reduced October hike bets, sparking a market rebound.

Canadian equities followed a similar trajectory but underperformed, as flat July GDP data and a mixed August estimate failed to provide clear direction. European equities initially rose on easing Hormuz concerns and dovish remarks from ECB President Lagarde, but gains faded as sovereign yields climbed. A late recovery came on Friday when oil prices dropped following France’s proposal to release 100 million barrels from strategic reserves.

Bonds rallied into Friday as weaker U.S. inflation and jobs data drew buyers to shorter maturities. The 2- and 10-Year U.S. Treasury yields fell 9 basis points and rose 8 basis points, respectively. Canadian government bonds outperformed Treasuries, reflecting a more cautious Bank of Canada outlook. In Europe, Bunds led a rally after Lagarde suggested higher long-term rates would cool growth and inflation, while French yields climbed on fiscal concerns.

Canadian GDP data indicated a resilient economy, with July output unchanged but August’s flash estimate suggesting growth reaccelerated. The U.S. job market showed signs of slowing, with payrolls rising only 29,000 in September, well below expectations. Meanwhile, Eurozone inflation accelerated to 3.8% year over year, driven by surging energy costs, while economic sentiment weakened.