Asian markets fell Tuesday as investors braced for a high-stakes US jobs report at the end of the week, while keeping an eye on China as new data sparked renewed concerns about the world’s second-largest economy.
The Federal Reserve is largely expected to cut interest rates at its next meeting this month, but Friday’s non-farm payrolls (NFP) data are expected to have a significant impact on how big the central bank will go.
Analysts cautioned that traders were sensitive to readings that were too far above or below estimates. A miss to the upside could temper optimism for a succession of reductions, while a reading considerably below projections would likely reignite worries about a potential reccession.
According to Charu Chanana of Saxo Capital Markets, this week’s labor statistics, including the NFP, job vacancies, and private hiring figures, will be essential in determining whether to cut rates by 25 or 50 basis points in September.
“If the data remains strong, a 25-basis-point cut becomes more likely. However, a disappointing NFP, especially if it goes below 130,000 and the unemployment rate rises more, might bring the rates market closer to pricing a 50-basis-point drop.
Chanana noted that markets will pay particular attention to statements from New York Fed President John Williams and Governor Christopher Waller later this week to get a sense of what officials are thinking.
With Wall Street closed Monday for a public holiday, there were few strong drivers to push activity, and Asia fell.
Hong Kong, Sydney, Seoul, Wellington, Taipei, Manila, Mumbai, and Jakarta all declined, with Tokyo slightly lower, despite tiny advances in Singapore and Bangkok.
London, Paris, and Frankfurt all rose.
Buyers were held back by concerns about the Chinese economy after another round of data revealed that the country’s industrial sector declined for the fourth consecutive month.
Since officials relaxed harsh Covid restraints at the end of 2022, a slew of indicators have pointed to economic problems, but Beijing has reluctant to embark on the kind of big-ticket stimulus it announced during the global financial crisis.
With no indication that the government will heed the cries for assistance, investors are left waiting nervously for the newest round of statistics this month, with inflation and trade expected next week.
The currency rose as Bank of Japan Governor Kazuo Ueda reiterated his plan to raise interest rates again if inflation and the economy meet expectations.
The bank’s surprising move to raise interest rates in July, just hours before the Fed indicated it was ready to begin cutting, triggered a large unwind of the so-called “yen carry trade,” in which investors leveraged the cheap currency to acquire high-yielding assets such as stocks.
