Inflation puts markets on edge as investors await US Jobs Report and Fed decision
The Asian markets are poised for a mixed opening this morning, as investors react to various economic indicators and monetary policy decisions. Despite a limited impact from the US Jobs Report, the July Fed rate hike remains a possibility, reflecting the hawkish sentiment in the market.
In June, nonfarm payrolls increased by 209,000, following a rise of 306,000 in May. Average hourly earnings also saw a slight increase to 4.4% compared to 4.4% in the previous month, indicating the potential need for further action from the Federal Reserve. However, despite these numbers, the sentiment in the market regarding the September Fed monetary policy decision remained largely unchanged.
According to the CME FedWatch Tool, the probability of a 25-basis point rate hike in July stands at 93.0%, up from 86.8% one week earlier. Moreover, the chances of the Fed raising rates to 5.75% in September increased to 24.2% from 20.8% one week prior.
Turning our attention to the Asian region, the Friday session was relatively quiet. Investors responded to the ADP nonfarm employment change numbers from Thursday, while household spending figures from Japan had a limited impact on the Nikkei.
As we begin the new week, the focus will be on inflation numbers from China, which are expected to remain steady at an annual rate of 0.2%. However, economists anticipate a decline of 5% year-over-year in the Producer Price Index, compared to 4.6% in May. A more significant drop in the index could signal weakening demand and potentially add to the prevailing sense of economic uncertainty.
Away from the economic calendar, news about the US Treasury Secretary Janet Yellen’s visit to Beijing has been positive. Reports suggest that the meetings were direct and productive, which could have implications for future trade relations between the United States and China.
ASX 200: Slides on Hawkish Fed Bets
On Friday, the ASX 200 experienced a bearish day, declining by 1.69% amid growing concerns about the potential Fed rate hike.
Among the major banks, the National Australia Bank (NAB) saw a decline of 2.11%, while ANZ Group (ANZ) slipped by 1.92%. Westpac Banking Corp. (WBC) and The Commonwealth Bank of Australia (CBA) also faced losses, falling by 1.42% and 1.69%, respectively.
Mining stocks were not exempt from the bearish sentiment. Rio Tinto (RIO) and Fortescue Metals Group (FMG) ended the day with losses of 0.74% and 0.37%, while BHP Group Ltd. (BHP) experienced a more significant decline of 1.75%. Newcrest Mining (NCM) recorded a loss of 2.57% by the end of the day.
Additionally, oil stocks also faced a bearish session, with Woodside Energy Group (WDS) and Santos Ltd. (STO) declining by 0.99% and 1.45%, respectively.
Hang Seng Index: Extends Losses for Third Consecutive Session
The Hang Seng Index continued its downward trend for the third consecutive session, falling by 0.90%.
Among the main components of the index, Tencent Holdings Ltd. (HK:0700) experienced a marginal decline of 0.06%, while Alibaba Group Holding Ltd. (HK:9988) rallied with a gain of 3.44%.
However, bank stocks faced a bearish session. HSBC Holdings PLC declined by 0.57%, while The Industrial and Commercial Bank of China (HK:1398) and China Construction Bank (HK:0939) recorded losses of 1.37% and 1.35%, respectively.
CNOOC (HK:0883) remained relatively stable, ending the day without significant changes.
Nikkei 225: Falls Amid Fed Jitters and Weak Household Spending Figures
The Nikkei 225 closed Friday with a loss of 1.17% as concerns regarding the Fed’s monetary policy decision and disappointing household spending figures weighed on investor sentiment.
Household spending in Japan declined by 1.1% in May, following a 1.3% drop in April. Economists had predicted a 0.5% increase, but weak consumption hindered hopes for a more positive economic outlook, despite the possibility of an ultra-loose Bank of Japan monetary policy.
From the banking sector, Sumitomo Mitsui Financial Group (8316) and Mitsubishi UFJ Financial Group experienced declines of 1.29% and 1.67%, respectively.
Looking at the major components of the Nikkei, Tokyo Electron Limited (8035) and KDDI Corp. (9433) both slid by 1.34% and 1.67%, while Sony Corp. (6758) and SoftBank Group Corp. (9984) registered losses of 1.07% and 1.22%, respectively. Fast Retailing Co. (9983) also faced a decline, albeit a smaller one of 0.78%.
In conclusion, the Asian markets are expected to have a mixed opening, with investors closely monitoring various economic indicators and the potential for a Fed rate hike. The ASX 200, Hang Seng Index, and Nikkei 225 have all experienced recent losses, driven by factors such as hawkish Fed sentiment, declining household spending, and uncertainties surrounding global trade relations.