(Bloomberg) — Asian equities were flat and the dollar and yen rallied against peers in a sign of defensive posturing as traders prepare for US data later this week that will offer clues on Federal Reserve rate cuts.
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Stocks in Australia, Hong Kong and South Korea fell, while mainland China shares fluctuated. Shares in Japan trimmed earlier gains, but were among the best performers in the region, even as the yen strengthened.
US equity futures fell ahead of Wall Street’s reopening later Tuesday, following the Labor Day public holiday. Treasuries were little changed.
As index of dollar strength traded at a two-week high and was on pace for fifth daily advance. The yen’s climb ended a run of weakening against the greenback in the prior four trading days.
Pimco Japan Ltd. expects the Bank of Japan to raise rates again as early as January, but further hikes may not lead to a stronger yen, according to Julius Baer, which is preparing for further weakness in the currency.
“Our assumption is that the Bank of Japan policy rate will be half a percent by March next year and the fed funds rate will be 4.5% — that’s still 400 basis points of difference, which is very wide,”said Mark Matthews, head of Asia research on Bloomberg Television. “On that basis we do see the yen weakening.”
The South Korean won weakened after August inflation data showed year-over-year prices rose at the slowest pace since 2021. The Australian dollar fell as iron ore prices dropped.
Traders will be looking ahead to American manufacturing data due later Tuesday for clues about the health of the US economy in a busy week of economic reports that will reach a crescendo on Friday with the nonfarm payrolls data.
Markets are pricing a start to the US easing cycle this month, with a roughly one-in-four chance of a 50 basis-point cut, according to data compiled by Bloomberg.
“The markets may be leaning too dovish into the September Fed meeting,” Valentin Marinov, head of G-10 FX strategy at Credit Agricole CIB. said on Bloomberg Television. “The dollar could recoup some ground once the markets realized that the Fed will move more cautiously.”
Rates Impact
The equity market rally could stall even if the Fed initiates a rate cut, JPMorgan Chase & Co. strategists cautioned, as any policy easing would be in response to slowing growth, while the seasonal trend for September would be another impediment, the team led by Mislav Matejka wrote in a note.
“We are not out of the woods yet,” Matejka said, reiterating his preference for defensive sectors against the backdrop of a pullback in bond yields. “Sentiment and positioning indicators look far from attractive, political and geopolitical uncertainty is elevated, and seasonals are more challenging.”
Traders in Asia will be keeping a close eye on fresh signs of economic troubles in China. Data on Saturday showed Chinese factory activity had contracted for a fourth straight month in August, the latest signal that the world’s second-largest economy may struggle to meet this year’s growth target.
The slowdown in China has highlighted the urgency of fresh government stimulus, while inventories of key raw materials from steel to soybeans are piling up in the nation’s warehouses — evidence that economic activity remains too feeble to clear surpluses.
Demand for Chinese housing should start to stabilize next year, which would be “a key turning point for us in terms of market confidence,” in the country’s equity market, Lorraine Tan, director of Asia equity research for Morningstar, said on Bloomberg Television.
In commodities, oil edged higher after Libya declared force majeure at a key oil field amid widening shutdowns that have wiped out close to a million barrels from daily global supplies.
Elsewhere, the US is laying the groundwork for new sanctions on Venezuelan government officials in response to Nicolás Maduro’s disputed reelection in July. The country had ordered the arrest of presidential candidate Edmundo González, an escalation of the government’s crackdown on dissent in the wake of the vote.
Key events this week:
Switzerland GDP, CPI, Tuesday
US construction spending, ISM Manufacturing index, Tuesday
Australia GDP, Wednesday
China Caixin services PMI, Wednesday
Euro-zone HCOB services PMI, PPI, Wednesday
Fed’s Beige Book, Wednesday
Eurozone retail sales, Thursday
Germany factory orders, Thursday
US initial jobless claims, ADP employment, ISM services index, Thursday
Euro-zone GDP, Friday
US nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.1% as of 2:18 p.m. Tokyo time
Japan’s Topix rose 0.5%
Australia’s S&P/ASX 200 was little changed
Hong Kong’s Hang Seng fell 0.5%
The Shanghai Composite fell 0.4%
Euro Stoxx 50 futures were unchanged
Currencies
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.1% to $1.1056
The Japanese yen rose 0.4% to 146.33 per dollar
The offshore yuan was little changed at 7.1220 per dollar
Cryptocurrencies
Bitcoin rose 0.4% to $59,231.6
Ether fell 1.2% to $2,524.21
Bonds
The yield on 10-year Treasuries advanced one basis point to 3.91%
Japan’s 10-year yield advanced two basis points to 0.925%
Australia’s 10-year yield was little changed at 4.01%
Commodities
West Texas Intermediate crude rose 0.5% to $73.93 a barrel
Spot gold fell 0.2% to $2,494.73 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott.
(An earlier version corrected the date that Chinese factory data came out.)
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