Indian stocks rose on Friday, with the benchmark Bombay Sensex index rising 0.7 percent to 76,682 points, while the broader Nifty 50 index rose 0.35 percent to 23,956 points, supported by declining expectations for the US Federal Reserve to raise interest rates this month, which boosted global stock markets and pushed bond yields lower.
In the exchange market, the Indian rupee was largely stable against the US dollar at 94.49 rupees to the dollar, amid speculation that the Reserve Bank of India had sold dollars to reduce the pressures on the currency as a result of rising oil prices, according to Reuters.
In the government bond market, the price of the benchmark 10-year bond settled at 99.8 rupees, while the yield remained unchanged at 6.9643 percent. Traders are anticipating the offering of new debt issues through the weekly auction, at a time when high oil prices are still a pressure factor, especially on bonds with longer terms.
In the overnight index swaps market, the one-year swap rate rose by two basis points to 6.02 percent, while the five-year swap rate fell by 1.5 basis points to 6.47 percent.
In the money market, no trades have yet been recorded on the overnight lending rate in India, while the overnight lending rate for India is 4.3 per cent.
Futures for the Nasdaq 100 index, which includes technology companies, and the Standard & Poor's 500 index rose on Friday, ahead of the release of jobs data that may test the momentum that stock markets have witnessed recently.
The data is scheduled to be released a day after Federal Reserve Governor Christopher Waller backed down expectations of raising interest rates. Traders now expect a roughly 50 percent chance of a rate hike, compared to about 63 percent before Waller's comments, according to the Fed Watch tool.
While Federal Reserve Chairman Kevin Warsh's focus on inflation has led some analysts to question whether labor market trends will affect the central bank's interest rate expectations, the expected jobs data is still a candidate to determine the direction of the final session of the week, according to Reuters.
Promising a quiet start to September, stocks regained their balance after Waller said he would support keeping interest rates unchanged if data showed inflationary pressures easing.
“Waller’s comments are important for several reasons,” said Felix Vezina-Poirier, chief strategist at BCA Research. This is the last major event related to the Federal Reserve’s statements before the blackout period that precedes the September meeting, leaving the markets confused until the decision is issued.”
He added that Waller was often the first to anticipate cycles of raising and lowering interest rates, which gives his directives more credibility.
Job growth is expected to rebound in August. Non-farm jobs are likely to have increased by 56,000 jobs, after falling by 23,000 jobs in July, according to a Reuters poll that included economists.
The latest nonfarm payrolls data showed that the economy unexpectedly lost jobs in July, and previously reported job gains for the previous two months were revised down sharply.
At 4:24 a.m. EST, Dow Jones futures fell 40 points, or 0.07 percent, while S&P 500 futures rose 4.75 points, or 0.06 percent, and Nasdaq 100 futures rose 124.25 points, or 0.42 percent.
Lululemon Athletica's shares fell by 17.67 percent in pre-market trading, after the company lowered its expectations for profits and revenues for the full year.
Adobe's shares fell by 3.18 percent after the company announced that its veteran CEO, Shantanu Narayan, would hand over the leadership to Anil Chakravarthy, one of the company's veteran executives.
With the Labor Day holiday approaching, the debate continues about the seasonally weak performance of stocks during the month of September.
Historically, September is the weakest month of the year for stocks, but most of the decline is concentrated in the second half of the month, with returns averaging less than 1 percent, according to Melissa Brown, head of global investment decisions research at Simcorp.
Investors will also get the latest inflation indicators when the Labor Department publishes CPI and Producer Price Index data next week.
Oil prices trended on Friday to record their largest weekly gains since mid-July, with the escalation of the confrontation between the United States and Iran and the decline of ship traffic through the Strait of Hormuz to very low levels, which brought supply risks in the Middle East back to the forefront of global energy market calculations.
Brent crude futures settled on Friday at $95.52 per barrel, while US West Texas Intermediate crude futures rose 0.1 percent to $91.36.
On a weekly basis, Brent jumped 7.6 percent, while US crude rose 10.4 percent, and the two crude oils are heading towards achieving the strongest gains since the week ending July 20.
These gains reflect the rise in the “geopolitical risk premium” in prices, after renewed hostilities between the United States and Iran, coinciding with the continuation of Ukrainian attacks on Russian refineries. Fears of supply disruptions contributed to pushing average diesel prices in the United States to record levels.
Fears increased after Israeli Defense Minister Yisrael Katz renewed his threats to target military and civilian infrastructure in Iran, including energy facilities, at a time when the war, which began with American-Israeli strikes on Iran at the end of February, entered its seventh month.
ANZ analysts believe that the new risks justify higher oil prices, as they raised their expectations for Brent crude in the short term to $95 per barrel, warning of the possibility of an additional rise if the conflict escalates in the Middle East.
Analysts said that the market is entering a “delicate adjustment phase,” after high stocks helped absorb the initial supply shock, but the problem has become one of maintaining market balance as these reserves decline.
Concerns are particularly focused on the Strait of Hormuz, one of the most important strategic corridors for global energy trade. Preliminary data from Kpler showed that only four ships transporting primary goods crossed the strait on Thursday, compared to nine ships the day before, and a significant difference from the 10-day average of about 15 ships.
The recorded movement included two medium-range tankers, a “Kamsarmax” cargo carrier, and a “Handy Size” ship. The data does not include ships that may have crossed the strait after turning off their AIS transmitters to avoid detection.
What is most significant for the oil market is that only two giant crude tankers have crossed the strait since the beginning of the week, which reflects the extent of the disruption that has affected the movement of energy through the sea corridor.
Before the outbreak of war with Iran on February 28, about 125 large commercial ships were crossing the strait daily, including oil and liquefied natural gas tankers, container ships, and bulk cargo. The corridor accommodated the equivalent of a fifth of the world's daily supplies of crude oil and liquefied natural gas.
Comparing current and pre-war traffic levels reveals the extent of the bottleneck facing supply chains. The US blockade on shipping related to Iran has also led to a halt in Iranian crude exports since it was reimposed in mid-July.
Claudio Galimberti, chief economist at Rystad Energy, said that exports of oil and petroleum products that were monitored daily during the war ranged most of the time between four and six million barrels per day, with the exception of a temporary rise that approached pre-war levels during the short-term agreement between Iran and the United States.
He expected flows to remain at very low levels until November, with continued disputes between Washington and Tehran and the rise in economic costs resulting from disruption to trade.
Political developments increase the chances of the crisis continuing. US Vice President J.D. Vance said that Washington will not hold talks with Iran unless Tehran stops attacking commercial ships in the Strait of Hormuz.
In return, Iran has expanded the list of ships it considers non-compliant, and which may face fines, confiscation or detention when attempting to cross the strait, while Iraqi ships remain among the limited number of ships that Tehran allows to pass.
The shipping disruption is not limited to Hormuz. In the Bab al-Mandab Strait on the Red Sea, Kepler data showed the crossing of 22 cargo ships on Thursday, a decrease from 31 ships the previous day, and less than the ten-day average of 24 ships.
However, political signals from Russia limited the rise in crude prices during Friday's session. Russian President Vladimir Putin said that he still sees a possible path to reaching an agreement that ends the war in Ukraine, and that the United States and China are ready to support a peace settlement.
But oil markets currently seem more focused on actual supplies than diplomatic signals. The continued decline in ship traffic through Hormuz, in conjunction with the pressure on Russian refineries and the threat to Iranian energy facilities, makes any new escalation capable of adding a greater risk premium to prices.
