(Bloomberg) — Asian stocks fell as the dollar and yen rallied against their peers, with markets averting more risk ahead of U.S. data later this week that could provide clues to interest rate cuts by the Federal Reserve.
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Shares in Australia and Hong Kong fell, while those in Tokyo and mainland China were mixed. U.S. stock futures fell ahead of Wall Street’s reopening later Tuesday after the Labor Day holiday.
Treasury bonds were little changed and an index of dollar strength rose. The yen firmed against the dollar after falling for four straight sessions.
Pimco Japan Ltd. expects the Bank of Japan to raise rates again as early as January, while Julius Baer prepares for further yen weakness despite BOJ rate hikes.
“Our assumption is that the Bank of Japan policy rate in March next year will be half a percent and the Fed Funds rate will be 4.5% – that’s still a difference of 400 basis points, which is very large,” says Mark Matthews, head of the Bank of Japan. Asia research on Bloomberg Television. “On that basis, we see the yen weakening.”
The South Korean won weakened after August inflation data showed prices rising at the slowest pace since 2021 on an annual basis. The Australian dollar fell as iron ore prices fell.
Traders will look 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 reach a crescendo with nonfarm payrolls data on Friday.
Markets are estimating a start to the US easing cycle this month, with about a one-in-four chance of a 50 basis point cut, according to Bloomberg data.
Rate impact
The stock market rally could stall even if the Fed initiates a rate cut, JPMorgan Chase & Co. strategists warned, as any policy easing would be a response to slowing growth, while the seasonal trend for September would be another obstacle are, 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 decline in bond yields. “Sentiment and positioning indicators look far from attractive, political and geopolitical uncertainty is greater and seasonal effects are more challenging.”
Traders in Asia will be closely watching new signs of economic trouble in China. Data on Saturday showed China’s factory activity contracted for a fourth straight month in August, the latest signal that the world’s second-largest economy could struggle to meet this year’s growth target.
China’s slowdown has highlighted the urgency for new government stimulus, as stockpiles of key commodities from steel to soybeans pile up in the country’s warehouses – evidence that economic activity remains too weak to mop up surpluses.
“Markets may be leaning too laconically towards the September Fed meeting,” said Valentin Marinov, head of G-10 FX strategy at Credit Agricole CIB. said on Bloomberg Television. “The dollar could recover some ground once markets realize the Fed will act more cautiously.”
In the commodities sector, oil prices rose after Libya declared force majeure on a key oil field, amid mounting shutdowns that have wiped out nearly 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 re-election in July. The country had ordered the arrest of presidential candidate Edmundo González, an escalation of the government’s crackdown on dissent in the aftermath of the election.
Main events this week:
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Switzerland GDP, CPI, Tuesday
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U.S. Construction Spending, ISM Manufacturing Index, Tuesday
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Australia’s GDP, Wednesday
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China Caixin serves PMI, Wednesday
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Eurozone HCOB delivers PMI, PPI on Wednesday
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Fed’s Beige Book, Wednesday
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Eurozone retail sales, Thursday
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Factory orders Germany, Thursday
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First U.S. unemployment claims, ADP employment, ISM services index, Thursday
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Eurozone GDP, Friday
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U.S. Nonfarm Payrolls, Friday
Some of the major moves in the markets:
Stocks
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S&P 500 futures fell 0.2% as of 1:06 p.m. Tokyo time
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Japan’s Topix rose 0.4%
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Australia’s S&P/ASX 200 fell 0.1%
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Hong Kong’s Hang Seng fell 0.4%
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The Shanghai Composite fell 0.5%
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Euro Stoxx 50 futures were little changed
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro fell 0.1% to $1.1056
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The Japanese yen rose 0.3% to 146.54 per dollar
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The offshore yuan fell 0.1% to 7.1261 per dollar
Cryptocurrencies
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Bitcoin rose 0.2% to $59,145.56
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Ether fell 1.5% to $2,517.37
Bonds
Raw materials
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West Texas Intermediate crude rose 0.5% to $73.89 a barrel
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Gold fell 0.2% to $2,494.12 an ounce
This story was produced with the help of Bloomberg Automation.
–With help from Jason Scott.
(An earlier version corrected the date when Chinese factory data came out.)
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