Asian Stocks Erase Gains as Dollar Resumes Rally: Markets Wrap

By Investor Empires On Sep 3, 2024

(Bloomberg) — Asian stocks were steady and the dollar and yen rose against their peers in a sign of defensiveness as traders brace for U.S. data later this week that will offer clues on an interest-rate cut by the Federal Reserve.

Most Read from Bloomberg

Stocks in Australia, Hong Kong and South Korea fell, while mainland China shares were mixed. Shares in Japan pared earlier gains but were among the region’s best performers, even as the yen strengthened.

U.S. stock futures were lower ahead of Wall Street’s reopening later Tuesday after the Labor Day holiday. Treasuries were little changed.

The dollar strength index traded at a two-week high, on track for its fifth daily gain. The yen’s rise ended a run of weakness against the dollar in the previous four trading days.

Pimco Japan Ltd. expects the Bank of Japan to raise interest rates again as early as January, but further increases may not lead to a stronger yen, according to Julius Baer, which is bracing for further weakness in the currency.

“We assume the Bank of Japan rate will be 0.5 percent by March next year and the federal funds rate will be 4.5 percent — that’s still a big 400 basis point spread,” said Mark Matthews, head of Asia research at Bloomberg Television. “On that basis, we see the yen weakening.”

The South Korean won fell after August inflation data showed prices rose on an annual basis at the slowest pace since 2021. The Australian dollar fell as iron ore prices fell.

Traders are looking ahead to U.S. manufacturing data due later Tuesday for clues about the health of the U.S. economy in a busy week of economic reports that will culminate on Friday with nonfarm payrolls data.

Markets are expecting the U.S. monetary easing cycle to begin this month, with about a one-in-four chance of a 50 basis point rate cut, according to data compiled by Bloomberg.

“Markets may be overly optimistic ahead of the Fed meeting in September,” Valentin Marinov, head of G10 FX strategy at Credit Agricole CIB, said on Bloomberg TV. “The dollar may regain some of its gains once markets realize that the Fed will move more cautiously.”

Price impact

JPMorgan Chase & Co. strategists warned that the stock market rally could stall even if the Federal Reserve cuts interest rates, as any policy easing would be in response to slowing growth, while September’s seasonal trend would be another drag, the team led by Mislav Matejka wrote in a note.

“We are not out of the woods yet,” said Matejka, who favoured defensive sectors against the backdrop of falling bond yields. “Sentiment indicators are far from attractive, political and geopolitical uncertainty is high and seasonal factors are more challenging.”

Traders in Asia will be watching closely for fresh signs of economic trouble in China. Data released on Saturday showed Chinese factory activity contracted for a fourth straight month in August, the latest sign that the world’s second-largest economy may struggle to meet its growth target this year.

China’s slowdown has highlighted the urgent need for new government stimulus, while stockpiles of key raw materials from steel to soybeans are piling up in the country’s warehouses — evidence that economic activity is still too weak to run surpluses.

China’s housing demand is expected to start stabilizing next year, which will be “a major turning point for us in terms of market confidence” in the country’s stock market, Lauren Tan, director of Asia equity research at Morningstar, told Bloomberg TV.

In commodities, oil prices rose slightly after Libya declared force majeure on a major oil field amid widespread shutdowns that have wiped out nearly 1 million barrels of daily global supply.

Elsewhere, the United States is laying the groundwork for new sanctions on Venezuelan government officials in response to Nicolás Maduro’s disputed re-election in July. The country has ordered the arrest of presidential candidate Edmundo González, marking an escalation in the government’s crackdown on the opposition in the wake of the vote.

Main events this week:

Switzerland GDP and CPI, Tuesday
U.S. Construction Spending, ISM Manufacturing Index, Tuesday
Australian GDP, Wednesday
China Services PMI, Wednesday
Eurozone HCOB to release PMI and PPI on Wednesday
Fed Beige Book, Wednesday
Eurozone Retail Sales, Thursday
German factory orders, Thursday
US Initial Jobless Claims, ADP Employment, ISM Services Index, Thursday
Eurozone GDP, Friday
US Non-Farm Payrolls, Friday

Some key movements in the markets:

Stocks

S&P 500 futures were down 0.1% as of 2:18 p.m. in Tokyo.
Japan’s Topix index rose 0.5%.
Australia’s S&P/ASX 200 was little changed.
Hong Kong’s Hang Seng Index fell 0.5%.
The Shanghai Composite Index fell 0.4%.
Euro Stoxx 50 futures were unchanged.

Currencies

The Bloomberg Dollar Index rose 0.1%.
The euro fell 0.1% to $1.1056.
The Japanese yen rose 0.4% to 146.33 yen per dollar.
The offshore yuan was little changed at 7.1220 per dollar.

Cryptocurrencies

Bitcoin rose 0.4% to $59,231.6
Ether price fell 1.2% to $2,524.21

Bonds

The yield on the 10-year US Treasury note rose one basis point to 3.91%.
The yield on the 10-year Japanese bond rose two basis points to 0.925%.
The yield on the 10-year Australian bond was little changed at 4.01%.

Goods

West Texas Intermediate crude rose 0.5% to $73.93 a barrel.
Spot gold fell 0.2 percent to $2,494.73 an ounce.

This story was produced with the help of Bloomberg Automation.

–With the assistance of Jason Scott.

(The release date of the Chinese factory data was corrected in an earlier release.)