Global stocks were on track for their strongest weekly gain since May on Friday, although markets turned cautious ahead of key U.S. employment data.

Investor optimism over strong corporate earnings and continued enthusiasm around artificial intelligence helped support equities, while renewed tensions in the Middle East pushed oil prices higher.

The MSCI All-World Index has gained 2.3% this week, its strongest performance in three months. In Europe, the STOXX 600 rose 0.2% on the day and was up 1.6% for the week, supported by technology and pharmaceutical stocks.

U.S. Nonfarm Payrolls Take Center Stage

Investors are now focused on the July U.S. employment report.

Current forecasts suggest:

• Nonfarm payrolls could rise by 80,000 jobs, following a 57,000 increase in June

• The unemployment rate is expected to remain unchanged at 4.2%

Markets remain divided over whether the Federal Reserve will raise interest rates next month, making the payroll report particularly important for the policy outlook.

A stronger-than-expected jobs report could reinforce expectations that interest rates will remain higher for longer, potentially putting pressure on equities. Conversely, weaker employment data could push Treasury yields lower and support stocks as expectations shift toward a more dovish Fed stance.

Oil Rises as Middle East Tensions Escalate

Geopolitical tensions intensified after Yemen’s Iran-aligned Houthi movement attacked Saudi Arabia, a major global oil producer. Riyadh also warned that coordinated attacks by the Houthis and Iran-backed Iraqi militias could be imminent.

Brent crude futures rose 1% to $83 per barrel, although prices were still heading for a 7% weekly decline and remained well below the recent peak of $102 per barrel reached two weeks earlier.

Iran is also reportedly reviewing a preliminary bill that could restrict U.S., Israeli and other vessels it considers “hostile” from passing through the Strait of Hormuz. The proposal could impose fines of up to 20% of a vessel’s cargo value for violations.

Dollar and Treasury Yields Hold Steady

U.S. Treasury yields were little changed ahead of the employment report:

• 2-year Treasury yield: 4.243%

• 10-year Treasury yield: 4.67%

The U.S. dollar also remained steady, while USD/JPY traded around 158.4.

The jobs report could play an important role in determining the yen’s next move following last week’s historic currency intervention by Japan and the United States.

Gold Extends Its Strong Weekly Rally

Gold continued to move in the opposite direction to the U.S. dollar.

With the dollar trading near six-week lows, gold climbed to its highest level in around six weeks. The precious metal has gained more than 6% this week, its strongest weekly performance since mid-January.

Gold was last up 1.2% at $4,289 per ounce.

Conclusion

Markets are currently being driven by two major factors: the U.S. employment report and renewed geopolitical tensions in the Middle East.

Nonfarm payrolls could significantly influence expectations for the Federal Reserve’s next move, while developments involving Saudi Arabia and the Strait of Hormuz remain important risks for oil, gold, currencies and global equities.