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Shares in Australia, South Korea and Japan all slipped. Contracts for the S&P 500 dropped for a second day after US trading was closed on Thursday to observe a national day of mourning for former President Jimmy Carter. The MSCI EM stock index entered a correction after declining by more than 10% from a high in October, reflecting uncertainty over US policies and China’s growth prospects.
Treasuries advanced in early Asian trading, following a rout earlier this week that drove 30-year yields to the highest since 2023. An index of the dollar held gains from the prior session.
Global financial markets have been volatile at the start of the year, with Treasury yields marching higher as investors moderated their view on the pace of Fed easing. That shift has reverberated through Asia, where a slowdown in Chinese growth had already sapped risk sentiment. Several Fed officials confirmed Thursday that the central bank will likely hold interest rates at current levels for an extended period, only cutting again when inflation meaningfully cools.
“The Fed is worried about the incoming administration,” Skyler Weinand, chief investment officer for Regan Capital, said on Bloomberg Television. The combination of the growing US fiscal deficit and a strong consumer could result in “higher interest rates for the next five to ten years,” he said.
The yen was steady around 158 per dollar. Traders are on alert for the potential Japan will support the yen, with the US jobs report looming as a potential catalyst for sharp moves in the currency.
Friday’s US nonfarm payrolls data is expected to show a slowdown in hiring in an otherwise robust labor market. Median estimates for the figures forecast that 165,000 jobs were added to the US economy in December. The unemployment rate is forecast to hold steady at 4.2% and average hourly earnings growth is seen cooling a touch from a month earlier.
“While losing momentum, we are still projecting a relatively firm increase for job gain,” said Oscar Munoz and Gennadiy Goldberg at TD Securities. “We also look for the unemployment rate to stay unchanged at 4.2%, amid a likely loss of momentum in wage growth owing to favorable seasonal factors.”
Elsewhere, the pound slipped to a more than one-year low and gilts sank on concern the UK’s Labour government will struggle to keep the deficit in check as borrowing costs surge. Australia’s 10-year yield ticked higher in early trading.
US Jobs
The US jobs data will offer a litmus test for the market’s “hawkish Fed pricing,” according to strategists Ian Lyngen and Vail Hartman at BMO Capital Markets. They noted that the implication from the bounce in Treasuries is that the pre-payrolls setup will be slightly more balanced – despite a bias favoring a strong showing from the employment figures.
“The resulting skew will leave the Treasury market poised to respond with a stronger bid in the event of a downside surprise than any selling pressure that might emerge on a strong report,” they noted.
Oil rose for a second day as falling US inventories offset more signs of economic weakness in China, the biggest importer.
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