Every major North American equity benchmark closed at or near a record this week. Gold posted its strongest run in two months. Brent crude fell more than seven percent. For five months, the Strait of Hormuz story has been the single mechanism connecting geopolitical headlines to Canadian portfolio prices: oil moves, energy stocks move, the loonie moves, and advisors explain the chain to clients. This week that mechanism broke.
Two Jobs Reports Broke the Correlation That Has Held Since February
Statistics Canada reported Friday that the economy added 75,100 jobs in July, roughly four times the consensus estimate of 17,800 and enough to pull the unemployment rate down to 6.4 percent, its lowest reading in two years. Minutes later, the US Bureau of Labor Statistics reported the American economy shed 23,000 jobs in July against a consensus forecast near 80,000, with the prior two months' gains revised sharply lower.
The market response was immediate and broad. The TSX Composite gained 0.7 percent Friday to close at a record 36,381.23, its biggest weekly advance in four months at 3.3 percent. The S&P 500 closed at a record 7,757.64, up 3.58 percent on the week. The Nasdaq Composite gained 5.19 percent and the Dow Jones Industrial Average added 2.96 percent.
Every major North American equity benchmark and gold advanced this week while Brent crude fell, the widest cross-asset split since the Strait of Hormuz closure began in February.
Every major North American equity benchmark and gold advanced this week while Brent crude fell, the widest cross-asset split since the Strait of Hormuz closure began in February. Weekly changes measured against the previous Friday's close.
Gold and Oil Stopped Moving Together
Since February, gold and oil have largely moved in the same direction, both rising on Hormuz-related fear and easing together when the situation calmed. This week that relationship inverted. Brent peaked at $94.26 on July 23 after reports that a parliamentary committee in Tehran was reviewing a shipping draft tougher than markets had priced, one that would bar US and Israeli vessels outright and fine violators a fifth of their cargo's value. From that peak, Brent fell in stages to $79.36 by August 4 and closed the week at $83.55, down 7.3 percent from the prior Friday.
Gold moved the opposite way. After trading in a choppy $4,000 to $4,160 range through most of July, gold broke higher starting August 4, climbing to $4,305.20 by August 5 and closing the week at $4,401.30, up 7.2 percent. The catalyst was not the Hormuz story. It was softening US labour data ahead of Friday's payrolls report, which began repricing the odds of a near-term Federal Reserve rate move even before the jobs number confirmed the weakness.
Both series indexed to 100 at the July 15 close. Brent peaked as Iran's parliamentary committee reviewed a tougher Hormuz shipping draft, then fell as soft US labour data began repricing Fed policy expectations.
Both series indexed to 100 at the July 15 close. Brent peaked as Iran's parliamentary committee reviewed a tougher Hormuz shipping draft, then fell as soft US labour data began repricing Fed policy expectations.
What the Bond Market Is Actually Pricing
Canada's five-year government bond yield climbed as high as 3.274 percent Friday morning immediately after the jobs release, up from Thursday's close of 3.228 percent, before easing back to roughly 3.25 percent. The 10-year yield rose to 3.65 percent, approaching the three-month high of 3.66 percent set July 31. The Bank of Canada held its policy rate at 2.25 percent for a sixth consecutive meeting in July, and a labour market this strong keeps a hike on the table if energy-driven inflation pressure persists.
In the United States, the picture is the reverse. A payrolls miss of this size, combined with sharply lower revisions to the prior two months, reduces the odds that Fed Chair Kevin Warsh's committee moves rates higher in September. That widening gap between a Bank of Canada that may need to tighten and a Federal Reserve that likely will not is what pulled the Canadian dollar toward 1.394 per US dollar this week, its strongest level since June. The move had little to do with the price of oil.
The Advisor Takeaway
Portfolios and client conversations anchored purely to Hormuz headlines missed the dominant driver of this week's price action. Iran's parliamentary committee still has not approved the Oman shipping framework, and the draft under review remains tougher than markets first expected. The geopolitical risk has not resolved. It simply stopped being the marginal price-setter this week, overtaken by a rate-differential story that moved gold, bonds, and the currency more than any tanker headline did.
The next test arrives August 12 with the US CPI report, which will show whether the Fed-cut repricing that lifted gold and equities this week holds or reverses. For clients still concentrated in energy positions built during the spring's Hormuz-driven rally, this week's seven percent Brent decline is a reminder that the correlation between headline risk and price is not fixed, and that the trade behind a portfolio position can change well before the headline that started it does.