Oil Surges, U.S. Stocks Retreat, Fed Turns More Hawkish, Google Loses AI Talent

Market Overview

Global markets shifted their focus back to energy and geopolitical developments on Thursday. International crude prices rallied more than 3%, with WTI September crude settling at $77.29 per barrel, up 2.75%, while Brent October crude closed at $82.49 per barrel, gaining 3.83%. The surge followed reports that Iran and Oman are working toward an agreement on navigation through the Strait of Hormuz, prompting geopolitical risk premiums to return to the oil market.

U.S. equities finished broadly lower. The Dow Jones Industrial Average fell 0.85% to 53,885, the S&P 500 declined 0.18%, and the Nasdaq Composite slipped 0.06%. Western Digital dropped more than 10% despite reporting earnings that exceeded expectations, while AppLovin tumbled nearly 20% after issuing weaker-than-expected guidance. Meanwhile, SpaceX gained more than 6% on the first day that previously restricted shares became eligible for trading.

The Federal Reserve also adopted a more hawkish tone. Fed Chair Kevin Warsh indicated that policymakers are prepared to raise interest rates in September if inflation remains elevated. He also proposed reducing the number of annual FOMC meetings from eight to between four and six. Treasury yields moved higher in response, with the 10-year Treasury yield rising about 6 basis points to 4.68%, while the 2-year yield climbed roughly 7 basis points to 4.25%.

In the technology sector, Google came under pressure after Chief Scientist Jeff Dean, along with three fellow researchers, departed to establish a new AI startup called Discovery Loop. Google's shares have now fallen more than 5% over the past two trading sessions.

Chinese equities posted mixed results. The Shanghai Composite Index gained 0.57% to 3,900, while the Shenzhen Component Index slipped 0.24% and the ChiNext Index declined 0.55%.

Market Outlook• U.S. July Nonfarm Payrolls in Focus

Following weaker-than-expected ADP employment data and increasingly hawkish remarks from Federal Reserve officials, the July Nonfarm Payrolls (NFP) report has become the market's most closely watched economic release. Payroll growth, the unemployment rate, and wage inflation will play a decisive role in shaping expectations for a potential September rate hike and the broader path of U.S. monetary policy.

• Geopolitical Risks Surrounding the Strait of Hormuz

Reports that Iran and Oman are negotiating an agreement on navigation through the Strait of Hormuz helped send crude oil prices sharply higher, underscoring the return of geopolitical risk as a key market driver. Investors will closely monitor whether the agreement materializes and whether shipping conditions through the strait improve. The outcome will determine whether the latest rally in oil prices proves to be a short-lived spike or the beginning of a more sustained uptrend, with important implications for global inflation expectations.

Key Events to Watch

• China's July Trade Balance, Exports, and Imports

• China's July Foreign Exchange Reserves

• U.S. July Nonfarm Payrolls Report

• Speech by Richmond Federal Reserve President Thomas Barkin