Asian share markets attempted a rebound on Thursday following a sharp sell-off earlier in the week, while a rally in U.S. Treasuries weakened the dollar and strengthened the yen, as concerns about the U.S. economy increased the likelihood of significant interest rate cuts by the Federal Reserve.
Oil prices held steady in early trading after previous declines driven by weak demand and supply concerns, while gold saw a slight uptick. Investors are closely analyzing a week packed with data releases, scrutinizing each report to assess the health of the U.S. economy and labor market. Weak manufacturing data on Tuesday and mixed labor figures on Wednesday have left markets cautious.
Japan’s Nikkei dropped 0.5%, hitting its lowest point in three weeks. However, tech-heavy markets in Taiwan and South Korea both saw a 1% rise after declines on Wednesday. This helped MSCI’s broadest index of Asia-Pacific shares outside Japan climb by 0.6%, breaking a three-day losing streak during which the index lost nearly 3%.
Investors on Thursday will focus on U.S. services industry data and jobless claims figures. However, the highlight of the week is Friday’s eagerly awaited August nonfarm payrolls report, expected to provide clearer insights into the U.S. economy’s direction and whether the Federal Reserve will reduce interest rates by 25 or 50 basis points at its meeting on September 17-18.
According to the CME FedWatch tool, markets are pricing in a 44% chance of a 50-basis-point rate cut, up from 38% a day earlier. Traders now expect 110 basis points of rate cuts for the remaining three Fed meetings this year.
This shift in expectations follows data from Wednesday showing that U.S. job openings fell to a 3.5-year low in July, signaling that the labor market may be cooling. Ryan Brandham, head of global capital markets for North America at Validus Risk Management, noted that the data supports the Fed’s recent emphasis on employment as part of its dual mandate. However, he cautioned that the risks lean toward the Fed cutting rates by less than markets are currently pricing in.
San Francisco Fed President Mary Daly remarked that the central bank needs to cut rates to maintain a healthy labor market, but the extent of the cuts will depend on forthcoming economic data. Vasu Menon, managing director of investment strategy at OCBC, noted that the risk of an economic downturn is now lower than last year, as the Fed appears prepared to act with deeper rate cuts if necessary.
In the currency markets, the dollar remained under pressure, as investors shifted away from riskier assets toward safe havens. The Japanese yen was one of the top gainers, last trading at 143.56 per dollar, marking a nearly 2% gain for the week so far. The Swiss franc, another safe-haven currency, stabilized at 0.8461 per dollar.
Treasury yields were steady during early Asian trading on Thursday after a sharp decline in the previous session. Two-year note yields were at 3.775%, following a drop to 3.772% on Wednesday, the lowest level since May 2023. Ten-year yields were at 3.767%.
In commodities, Brent crude futures rose 0.45% to $73.03 per barrel after a 1.42% drop in the previous session. U.S. West Texas Intermediate crude futures increased by 0.52% to $69.56 following a 1.62% decline on Wednesday.
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