• The U.S. economy surged due to a strong labor market report, with 254,000 workers added to nonfarm payrolls.
• The robust jobs report led to a rise in U.S. Treasury yields and a shift in Federal Reserve rate cut expectations.
• The reopening of U.S. ports and a wage deal also boosted the economy, leading to record highs on Wall Street.
• However, geopolitical tensions and the impact of the port strike recovery continue to pose challenges.

The global equities index of MSCI experienced a significant rise recently, while the dollar reached its highest level since mid-August. This surge was a result of investors breathing a sigh of relief after a surprisingly strong U.S. labor market report.

The U.S. Bureau of Labor Statistics reported that 254,000 workers were added to nonfarm payrolls last month, surpassing the 140,000 economists had estimated. The 4.1% unemployment rate was also below estimates, while August job growth was revised higher.

This robust jobs report led to a rise in U.S. Treasury yields to their highest level since early August. Traders abandoned bets that the Federal Reserve would cut rates by half a percentage point the following month. Instead, they now see a roughly 97% probability that the Fed will cut rates by only a quarter percentage point in November.

Julia Hermann, a global market strategist at New York Life Investments, noted that the U.S. equities reaction to this strong jobs growth confirms that investors are most concerned about economic growth, even when it comes with a hawkish disruption.

She added that the market's ability to digest this hawkish shift points to a constructive view about the economic outlook, as evidenced by moves in U.S. Treasuries and stocks.

U.S. Ports Reopen, Wall Street Reacts Positively

In addition to the strong jobs report, the U.S. economy received further relief with the reopening of U.S. East Coast and Gulf Coast ports on Friday. Dockworkers and port operators reached a wage deal to settle the industry's biggest work stoppage in nearly half a century. However, clearing the cargo backlog is expected to take time.

On Wall Street, the Dow Jones Industrial Average rose 341.16 points, or 0.81%, to 42,352.75, registering a record closing high. The S&P 500 climbed 51.13 points, or 0.90%, to 5,751.07, and the Nasdaq Composite advanced 219.37 points, or 1.22%, to 18,137.85.

MSCI's gauge of stocks across the globe rose 4.82 points, or 0.57%, to 847.12. For the week, the index showed a roughly 0.7% decline. Earlier, Europe's STOXX 600 index rose 0.44%.

Geopolitical Tensions and Market Reactions

However, investors remained anxious about how Israel would respond after Iran fired missiles at it on Tuesday. Supreme Leader Ayatollah Ali Khamenei said earlier that Iran and its regional allies will not back down. But oil prices pared gains after U.S. President Biden said that, in Israel's shoes, he would consider alternatives to striking Iranian oil fields and that he thinks Israel has not decided yet how to respond.

U.S. crude settled up 0.9% at $74.38 a barrel and Brent settled at $78.05 per barrel, up 0.55% on the day. In currencies, the dollar jumped to a seven-week high and was eying its biggest weekly gain since September 2022 after the jobs report led traders to cut their bets on a big Fed rate cut. Based on its gains for the full week, New York Life's Hermann said the dollar was also clearly reacting to geopolitical risk.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.56% to 102.48. The euro was down 0.5% at $1.0976 while against the Japanese yen, the dollar strengthened 1.25% to 148.77.

In Treasuries, the yield on benchmark U.S. 10-year notes rose 12.5 basis points to 3.975%, from 3.85% late on Thursday while the 30-year bond yield rose 7.9 basis points to 4.259%. The 2-year note yield, which typically moves in step with interest rate expectations, rose 21.8 basis points to 3.9321%, from 3.714% late on Thursday.