 "Asia stocks bounce after losses, dollar sags on weak US inflation data")
The Bank of Canada is expected to cut again on Wednesday, with markets implying a 22% chance of 50 basis points Photo: Reuters
Asian stock markets kicked off Monday on a cautious note as investors geared up for a week brimming with economic data, capped by a crucial U.S. jobs report. This report could be a deciding factor in whether the anticipated rate cut will be minor or major.
Adding to the quieter trading environment were holidays in the U.S. and Canada. Meanwhile, election victories by far-right parties in German state elections introduced a fresh wave of political uncertainty.
Dollar Holds Steady After Spending Data
Last Friday’s positive spending data fortified the dollar, leading markets to dial down the odds for a substantial half-point rate cut by the Federal Reserve.
Right now, futures are fully priced for a 25 basis point cut on September 18 and indicate a 33% chance of a 50 basis point cut. By December, a total of 100 basis points in cuts are expected, with another 120 basis points anticipated for 2025.
Bank of Canada Rate Cuts on the Horizon
The Bank of Canada is also expected to cut its rates again on Wednesday. Markets are implying a 22% chance of a 50 basis point cut.
U.S. Jobs Report: The Game Changer
All eyes are on the U.S. payrolls report slated for Friday. Analysts anticipate an increase of 165,000 jobs and a slight dip in the unemployment rate to 4.2%.
“The risks heading into this crucial release seem highly asymmetric. A solid report is unlikely to derail the September cut,” said Christian Keller, an economist at Barclays. “In contrast, a weak report would likely validate the narrative that the U.S. economy and labor market are teetering, necessitating a fast and deep cutting cycle, leading to another sharp repricing.”
Fed Governor Christopher Waller and NY Fed President John Williams are scheduled to speak after the job data, providing the market with almost an immediate sentiment gauge.
Alongside the jobs report, other significant releases this week include the ISM surveys, JOLTS job openings, ADP employment data, trade numbers, and the Fed’s Beige Book.
These factors kept investors on their toes, causing S&P 500 futures to dip 0.1%, while Nasdaq futures eased by 0.2%.
Asian Markets and Dollar Update
Asian markets mostly followed Wall Street’s rally from last Friday. Japan’s Nikkei rose by 1.0%, extending last week’s impressive 8.7% gain.
Outside of Japan, MSCI’s broadest index of Asia-Pacific shares edged down 0.1%, while South Korean stocks remained flat.
With the U.S. and Canadian markets on holiday, cash Treasuries were not traded. Treasury futures showed minimal movement, with ten-year yields standing at 3.914% post-Friday’s inflation and spending data.
This rise supported the U.S. dollar, which stood firm at 146.55 yen, having rallied 1.2% last week. However, it faces resistance at around 148.54.
The euro was stable at $1.1046, after losing 1.3% last week, partly due to political uncertainty in Germany.
European Central Bank Likely to Cut Rates
According to financial markets, the European Central Bank (ECB) is almost certain to cut rates by a quarter point next week following placid EU inflation figures.
However, the path forward is less clear with markets currently pricing 1-1/2 cuts over the remaining two meetings of the year,” said Joseph Capurso, head of international economics at CBA. “We anticipate one more cut in 2024 after September, but it will be a tough call between one or two more cuts.”
Impact on Commodities
The stronger dollar, combined with higher bond yields, put pressure on gold prices. Gold held at $2,502 an ounce, shy of its recent all-time high of $2,531.60.
Oil prices slipped further as the market speculated about increased supply from OPEC+ in October. Brent crude fell by 41 cents to $76.50 a barrel, while U.S. crude lost 38 cents, settling at $73.17 per barrel.
(Only the headline and picture of this report may have been reworked by the India Press Live staff; the rest of the content is auto-generated from a syndicated feed.)
First Published: Sep 02 2024 | 7:00 AM IST