Asia's stock markets performed poorly on Thursday (September 5th), with the Japanese stock market falling to a three-week low as investors sought safe havens, pushing the yen to a one-month high, while concerns about the US economy increased the prospect of the Fed cutting interest rates.
The MSCI Asia-Pacific Excluding Japan broadest index rose 0.25%, after falling nearly 3% in the previous three days. The index had previously risen more than 0.6%, but then gave back some of the gains. #DecisionAnalysis#
In fragile sentiment, Japan's benchmark Nikkei index fell more than 1% to its lowest level in three weeks, while South Korea's tech-dominated stock market rose slightly but gave up earlier gains.
Futures indicate that European stock markets will open lower, with Euro Stoxx 50 futures down 0.25%, Germany's DAX futures down 0.3%, and the UK's FTSE futures down 0.25%.
September is challenging.
In this data-heavy week, investors are looking for clues about the health of the U.S. economy and labor market. Weak manufacturing data on Tuesday and mixed employment data on Wednesday have put the market on edge.
Daniel Tan, portfolio manager at Grasshopper Asset Management in Singapore, said: "September has historically been a challenging month for risk assets. Given the strong performance in July and August, it is not uncommon for global portfolio managers to take profits."
On Thursday, investors will focus on U.S. service sector data and jobless claims, but the key focus of the week will be the highly anticipated August non-farm payrolls report on Friday. The report is expected to provide the clearest clues about the direction of the U.S. economy and determine whether the Fed will cut interest rates by 0.25 or 0.5 percentage points this month.
The FedWatch tool of the Chicago Mercantile Exchange shows that the market now expects a 44% probability of a 50 basis point rate cut by the Federal Reserve at the September 17-18 meeting, up from 38% the previous day. Traders now expect the Federal Reserve to cut rates by a total of 110 basis points in the remaining three meetings.
What caused the change in market expectations?
The latest reason for the change in market expectations is that Wednesday's data showed that US job openings in July fell to their lowest level in three and a half years, indicating a loss of momentum in the labor market.
Mary Daly, President of the Federal Reserve Bank of San Francisco, said that the Fed needs to cut interest rates to maintain a healthy labor market, but the specific magnitude of the rate cut depends on the upcoming economic data.
Analysts expect sentiment to continue to be fragile, and growth-oriented stocks will face pressure.
Francis Tan, Chief Strategist for Asia at Indosuez Wealth Management, said, "In the short term, I believe that US technology stocks will continue to decline, influenced by sentiment and technical factors." He also suggested that investors shift towards "value-oriented sectors... you can call them more boring stocks - telecommunications, healthcare, and some utility and infrastructure-related sectors."
In the foreign exchange market, as expectations of rate cuts rise, the US dollar continues to weaken. The yen is one of the biggest beneficiaries of investor risk aversion, trading against the dollar around 143.45, slightly lower than an earlier one-month high of 143.20. The yen has risen nearly 2% this week.
After falling on Wednesday, US Treasury yields remained stable during the Asian session on Thursday. The 10-year Treasury yield is at 3.765%, while the 2-year Treasury yield has remained unchanged at 3.764%.
In terms of commodities, Brent crude oil futures rose 0.37% to $72.97, down 1.42% from the previous trading day. US WTI crude oil futures rose 0.38% to $69.46, down 1.62% on Wednesday.