(Dec 16): Stocks drifted lower on Tuesday and the dollar hovered near two-month lows as investors stayed cautious ahead of key US economic data that may signal where interest rates are headed. The yen strengthened.
The MSCI Asia-Pacific Index fell 0.6%, with roughly three stocks declining for every one that advanced. Japanese shares dropped almost 1%. The moves followed a second straight decline in US equities. Futures for US stocks also weakened ahead of Tuesday’s November jobs report, which is expected to show a sluggish labour market. Bitcoin stayed below US$86,000 ($110,929), while gold held its five days of gains.
Currencies were in focus in Asia with the yen gaining against the dollar to trade around 155 ahead of the Bank of Japan’s widely expected move to lift its key rate to the highest level in three decades on Friday. A gauge of the dollar traded around levels last seen in early October. The Indian rupee has slid to record lows and a rising number of officials are arguing for a stronger yuan to rebalance the Chinese economy.
The moves underscored a sense of caution building in the final weeks of a year marked by April’s market lows, when century-high US tariffs rattled investors, followed by the artificial intelligence-driven rebound and US Federal Reserve (Fed) easing. With a large number of key economic data due this week, investors will get a clearer read on whether that narrative can hold.
“Investors appear indecisive about making bold moves ahead of a heavy plate of high-profile economic data,” said Jose Torres at Interactive Brokers.
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Following the Fed’s latest rate cut, the November jobs report will be key for investors assessing the path of interest rates. The reading will also include an estimate of October payrolls — figures that were delayed by the federal shutdown, while the US consumer price index is scheduled for Thursday.
Treasury 10-year yields steadied around 4.17% after edging down on Monday amid bets the Fed will cut rates twice next year to support the jobs market even as inflation shows signs of stickiness.
With the Fed still appearing to be more focused on labour-market weakness than inflation, we are likely facing a “bad news is good” scenario for the jobs report, according to Chris Larkin at E*Trade from Morgan Stanley.
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“As long as the numbers don’t suggest employment is falling off a cliff, the markets may embrace soft data because it could lead to a more-dovish Fed,” he said.
Fed governor Stephen Miran argued the policy stance is unnecessarily restrictive. Fed Bank of New York president John Williams said policy is well positioned for next year following last week’s reduction. His Boston counterpart Susan Collins noted the rate decision was a “close call” as she’s concerned about high inflation.
Elsewhere, Nasdaq Inc, the second-largest exchange in the US, is looking for regulatory approval to extend trading hours on its stock venues to 23 hours during the work week.
Investors in Japan are focusing on the yen with Bank of Japan governor Kazuo Ueda widely expected to raise rates on Friday. The path ahead has become murkier as the government’s need for cheap financing clashes with a weakening yen that’s driving up import prices.
Benchmark Japanese 10-year bond yields hit 1.97%, the highest in 18 years, earlier this month, prompting Ueda last week to send a warning shot to say they are rising “somewhat fast”.
Back in the US, there are obvious data-quality concerns given that the Bureau of Labor Statistics has been playing catch-up following the government shutdown, according to Ian Lyngen at BMO Capital Markets. Therefore, investors might take a more cautious view to trading this week’s key data prints.
If market expectations are right, that could set the stage for another solid run for Treasuries, which are headed for their best year since 2020.
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“The insights within the payrolls and inflation reports will nonetheless set the tone for the US rates market as year-end, holiday-trading mode quickly approaches,” Lyngen noted.
Corporate news:
- Mitsubishi UFJ Financial Group Inc is nearing a deal to buy a minority stake in India’s Shriram Finance Ltd, the latest foreign bank seeking to build a presence in the world’s most populous country.
- PayPal Holdings Inc applied to become a bank in the US, looking to take advantage of the Trump administration’s openness to financial-technology companies entering the banking system.
- Ford Motor Co will take US$19.5 billion in charges tied to a sweeping overhaul of its electric vehicle business after struggling for years to make it profitable.
Some of the main moves in markets:
Stocks
- S&P 500 futures were down 0.2% as of 10.28am Tokyo time on Tuesday
- Japan’s Topix fell 0.8%
- Australia’s S&P/ASX 200 rose 0.1%
- Hong Kong’s Hang Seng fell 0.3%
- The Shanghai Composite fell 0.2%
- Euro Stoxx 50 futures fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at US$1.1748
- The Japanese yen was little changed at 155.08 per dollar
- The offshore yuan was little changed at 7.0434 per dollar
- The Australian dollar fell 0.2% to US$0.6629
Cryptocurrencies
- Bitcoin fell 0.4% to US$85,885.14
- Ether rose 0.1% to US$2,949.64
Bonds
- The yield on 10-year Treasuries was little changed at 4.17%
- Japan’s 10-year yield was little changed at 1.955%
- Australia’s 10-year yield was little changed at 4.72%
Commodities
- West Texas Intermediate crude fell 0.3% to US$56.63 a barrel
- Spot gold rose 0.1% to US$4,311.21 an ounce
Uploaded by Tham Yek Lee
