Hang Seng Index, ASX 200, Nikkei Index: Asian Markets Brace for US Jobs Report

It could be a pivotal Friday session for the global financial markets. However, the Asian markets must wait until Monday to react to the crucial US Jobs Report. Amidst speculation about BoJ and RBA rate hikes, soft US labor market numbers could fuel bets on a September Fed rate cut.

How will the Asian equity markets cope with pre-release jitters?

US Equity Markets: Futures Send Mixed Signals Pre-Jobs Report

The US equity markets were closed on Thursday, July 4, for the Fourth of July holidays. This week, US services sector and labor market data raised investor bets on a September Fed rate cut.

However, a contraction across the US services sector failed to convince investors of a likely shift in Fed rhetoric. Inflation remained a concern. The US Jobs Report could change the narrative.

On Friday, the US Futures signaled the uncertainty about the US Jobs Report and its impact on the Fed rate path. The Nasdaq mini was down 8 points, while the Dow and S&P 500 minis were up 27 and 1 points, respectively.

The movements across the US Futures were no guide for investors during the Friday Asian morning session.

However, the Asian economic calendar warranted investor interest amidst shifting sentiment toward BoJ and RBA monetary policy goals.

Household Spending Raises Doubts About a July BoJ Rate Hike

Japanese household spending unexpectedly fell by 0.3% in May after sliding by 1.2% in April. Economists expected a 0.5% increase. The May decline left household spending down 1.8% year-on-year after a 0.5% year-on-year increase in April.

The numbers were significant for the Bank of Japan amid speculation about a July interest rate hike. A pullback in household spending could dampen demand-driven inflation and leave the BoJ in an interest rate holding pattern. A less hawkish BoJ rate path could adversely impact buyer demand for the Yen, a boon for Nikkei-listed export stocks.

For context, household spending fell for the sixth time in eight months, signaling a Q2 2024 economic contraction.

Do the latest household spending figures question whether the BoJ can bolster the Yen?

Market experts speculate that the BoJ may need to address Yen weakness through monetary policy. Cutting Japanese Government Bond purchases and a rate hike could do the trick. However, economic indicators from Japan signal a Q2 2024 economic contraction and could influence the July decision.

In June, Bruegel Senior Fellow Alicia Garcia Herrero saw quantitative tightening as more effective than interventions, saying:

“Bank of Japan to start quantitative tightening, which could support the Yen more than intervention.”

Hang Seng Index Struggles Ahead of US Jobs Report

Meanwhile, the Hang Seng Index was down 0.25% on Friday morning. Real estate and tech stocks contributed to the losses as investors awaited the US Jobs Report.

The Hang Seng Mainland Properties (HSMPI) slid by 1.11%, while the Hang Seng Tech (HSTECH) Index fell by 0.93%.

Alibaba (9988) gained 0.62%. However, Tencent (0700) declined by 0.26%, with Baidu (9888) flat.

A hotter-than-expected US Jobs Report could sink investor bets on a September Fed rate cut and rate-sensitive Hang Seng Index-listed stocks.

The Mainland China equity markets also had a negative start to the Friday session. The Shenzhen Composite and CSI 300 were down 0.29% and 0.49%, respectively.

Concerns about an all-out trade war between the EU and China impacted Mainland and Hong Kong-listed stocks. From Friday, July 5, the EU plans to introduce provisional tariffs on electric vehicle imports from China as talks between the EU and China continue.

Bloomberg Economics Western Europe Team Leader Zoe Schneeweiss shared the news, saying,

“EU moves ahead with provisional tariffs on EV imports from China.”

While tariffs hurt China, the weaker Yen continued to draw investor interest.

Nikkei Bucked the Trend on Weak Household Spending

The Nikkei Index gained 0.18% on Friday morning as investors reacted to the household spending numbers. Despite rising bets on a Fed rate cut, the USD/JPY held onto the 161 handle, driving demand for Nikkei-listed export stocks.

Tokyo Electron Ltd. (8035) rallied 1.12%, while Softbank Group Corp (9984) gained 0.40%.

ASX 200 Down Due to Commodity Prices and RBA Rate Path Uncertainty

The ASX 200 Index was down 0.06% on Friday. It was a mixed session for gold and oil-related stocks. However, banking and mining stocks dragged the ASX 200 into negative territory.

Mining giants BHP Group Ltd (BHP) and Rio Tinto Ltd. (RIO) fell by 0.45% and 0.40%, respectively. Iron ore spot declined by 0.89% on Thursday and extended its losses on Friday morning (-0.53%).

Fears of a Q3 2024 RBA rate hike pressured the big four banks. National Australia Bank Ltd. (NAB) and Westpac Banking Corp. (WBC) saw losses of 0.62% and 0.26%, respectively.

In conclusion, investor uncertainty about monetary policy influenced the Asian equity market session. Fears of BoJ and RBA rate hikes coincided with market jitters about the looming US Jobs Report. Concerns about an all-out China-EU trade war also influenced the market trends.

Considering the level of monetary policy uncertainty, investors should closely monitor the news wires, real-time data, and expert commentary to manage trading strategies accordingly. Stay informed with our latest updates and insights to navigate the Asian equity markets effectively.