Asia’s stock markets displayed a mixed performance on Friday, reacting to weakened US stocks and bonds after robust signals from the labor market reduced expectations for imminent interest-rate cuts by the Federal Reserve. Japanese shares gained ground, supported by yen weakness, while China’s CSI 300 Index entered positive territory for the first time in the week. Conversely, equities in South Korea and Hong Kong experienced declines, and Australian stocks fluctuated. These movements followed the S&P 500’s fourth consecutive day of losses and the Nasdaq 100’s fifth-day decline, marking its worst performance since December 2022 and contributing to a three-day decline in global equities.
Treasuries saw minimal changes in early Asian trading, with losses across the curve as strong US jobs data prompted investors to recalibrate their expectations for Federal Reserve rate-cut forecasts. The 10-year yield reached 4% following the data release, reflecting increased hiring by US companies in December and jobless claims coming in below estimates.
Sylvia Sheng, global multi-asset strategist for JPMorgan Asset Management, stated, “Our base case is for about four cuts this year starting in the middle of the year.” She emphasized that recent Fed commentary, including minutes released during the week, pushes back against the likelihood of an early rate cut this year.
Options traders are positioning for potential further selling, with a significant trade targeting a yield as high as 4.15%. The probability of a Fed rate cut by March, according to swaps traders, decreased to around 65% from approximately 85% a week ago. Friday’s crucial US jobs data for December is expected to provide more clarity on the trajectory of interest rates.
Veronica Clark, an economist at Citigroup, anticipates the report to diminish expectations for near-term rate cuts in January and March. This sentiment, coupled with a recent loosening of financial conditions, has impacted gold prices, setting the metal up for its first weekly drop in a month.
In the currency markets, the yen slightly weakened after a 1% decline against the greenback, bringing it closer to 145 per dollar. This move followed speculation that the Bank of Japan might face challenges dissolving its negative interest rate policy after an earthquake earlier in the week.
Oil prices edged higher, securing a weekly gain amidst tensions in the Middle East and North Africa, overshadowing signs of weakening US demand. Cryptocurrencies experienced mixed movements, with Bitcoin falling 1.9% to $43,648.93 and Ether declining 1.2% to $2,247.7.
Key events to watch include euro-zone inflation and producer prices data, which will influence expectations for European Central Bank policy. Additionally, the US nonfarm payrolls and unemployment report, factory orders, and the ISM services index will be closely monitored.
Market Movements:
- S&P 500 futures and Nasdaq 100 futures remained relatively unchanged.
- Japan’s Topix rose by 0.6%.
- Australia’s S&P/ASX 200 showed little change.
- Hong Kong’s Hang Seng remained stable.
- The Shanghai Composite rose by 0.1%.
- Euro Stoxx 50 futures fell by 0.4%.
Currency and Commodity Movements:
- The Bloomberg Dollar Spot Index showed little change.
- The euro remained stable at $1.0947.
- The Japanese yen fell 0.1% to 144.83 per dollar.
- The offshore yuan fell 0.2% to 7.1733 per dollar.
- The Australian dollar showed little change at $0.6710.
- Bitcoin fell 1.9% to $43,648.93.
- Ether fell 1.2% to $2,247.7.
Bonds and Commodities:
- The yield on 10-year Treasuries was little changed at 4.00%.
- Japan’s 10-year yield remained stable at 0.615%.
- Australia’s 10-year yield advanced by six basis points to 4.11%.
- West Texas Intermediate crude rose by 0.7% to $72.71 a barrel.
- Spot gold rose by 0.1% to $2,046.36 an ounce.
