A trader works on the floor of the New York Stock Exchange at the Opening Bell in New York, New York, USA, 28 February 2023. (Photo: EPA-EFE/JUSTIN LANE) Shares in Japan rose, helped along by yen weakness, with China’s CSI 300 Index in the green for the first time this week. Equities in South Korea and Hong Kong slipped and those in Australia fluctuated. Those moves followed a fourth day of loss for the S&P 500 on Thursday while the tech-heavy Nasdaq 100 dropped for a fifth day — its worst showing since December 2022 — in a sign of selling pressure among last year’s winning tech stocks. The declines pushed a gauge of global equities down for a third day.
Treasuries were little changed in early Asian trading with losses across the curve as strong US jobs data prompted investors to re-calibrated Federal Reserve rate-cut forecasts. The 10-year yield hit 4% after data showed US companies ramped up hiring in December and jobless claims came in below estimates.
“Our base case is for about four cuts this year starting in the middle of the year,” said Sylvia Sheng, global multi-asset strategist for JPMorgan Asset Management, on Bloomberg Television. “We think commentary from the Fed including minutes this week probably pushes back against a very early cut this year.”
The 10-year benchmark rate has added about 12 basis points since the start of the year and some traders are priming for further selling after Friday’s jobs data. One large options trade, that expires on Friday after the employment figures are released, targets a yield of as high as 4.15%.
Swaps traders now see around a 65% chance the Fed will cut rates by the Fed’s March meeting, down from around 85% a week ago. Friday’s key US jobs data for December may offer more clarity on the path forward for interest rates. Nonfarm payrolls likely increased by 175,000 last month while the unemployment rate is seen edging up slightly to 3.8%, according to economists polled by Bloomberg.
Veronica Clark, an economist at Citigroup, expects the report to dampen bets on near-term cuts for January and March.
“Even with a recent loosening of financial conditions, risks for monthly job growth still skew more to the downside than upside, and markets are likely to be more reactive to weaker data,” she wrote.
That’s hurt gold, with the metal poised for its first weekly drop in a month.
Yen declines
The yen slightly weakened after lodging its second decline of almost 1% against the greenback on Thursday, pushing the Japanese currency closer toward 145 to the dollar. The move followed speculation the Bank of Japan will find it harder to dissolve negative interest rate policy following an earthquake earlier this week.
One measure shows, Chinese stocks have reached a level that historically leads to spectacular returns.
Oil edged higher, cementing a weekly gain, as simmering tensions in the Middle East and North Africa eclipsed signs of weakening US demand.
Traders will also closely watch euro-zone inflation and producer prices data to be released later on Friday, which will help shape expectations for European Central Bank policy.