Asian stocks dropped on Friday as investors took a cautious stance before the release of key US jobs data, which is expected to offer new insights into the direction of interest rates. While there were mixed movements in markets across Asia, global trading sentiment remained muted, with traders waiting for signals from upcoming economic reports.
Shares in China and Hong Kong fluctuated, while Japan and South Korea experienced declines. Australian stocks recovered slightly from earlier losses. US futures stayed within narrow ranges after the S&P 500 gained 0.4% and the Nasdaq 100 added 0.5% on Thursday. The Japanese yen showed some volatility after four days of gains.
Japan’s Strong Yen Affects Stocks
The drop in Japanese stocks was partly influenced by the yen’s strength. On Thursday, the yen reached its highest value since December, following comments from Bank of Japan (BoJ) board member Naoki Tamura. He suggested that higher interest rates could be a possibility in the near future. This sparked optimism for the yen, although it had mixed effects on the stock market.
Jerry Minier, co-head of G10 FX trading at Barclays, noted that “hawkish headlines from Japanese officials on domestic policy rates have created some enthusiasm” for the yen. He added that “the dollar has lost its tailwind for now.”
Meanwhile, Japan’s Prime Minister Shigeru Ishiba was preparing for a meeting with US President Donald Trump on Friday, adding another layer of uncertainty to market movements.
US Jobs Report Holds Market’s Attention
Ahead of the release of the nonfarm payroll figures later on Friday, traders seemed relatively calm. The report is expected to show 175,000 new jobs added to the US economy, a number that will be closely scrutinized for clues about future interest rate decisions. If the report shows weak job growth, the market may anticipate further Federal Reserve rate cuts. On the other hand, a stronger-than-expected number could suggest that rate cuts are less likely.
The market’s focus has shifted away from the tariff-related tensions that rattled financial markets earlier in the week, with Friday’s employment report expected to be the main catalyst for market movement.
Jobless Claims and Labor Productivity Data
Data released on Thursday showed a rise in initial jobless claims, while labor productivity remained strong. Wall Street will also be closely watching the upcoming revision of previous job growth numbers, which economists expect to be significant, though likely not as bad as initially feared.
Amy Xie Patrick, head of income strategies for Pendal Group, said in an interview on Bloomberg Television that the market is likely to remain directionless for the time being. She emphasized a focus on holding quality assets and prioritizing safer investment options as uncertainty continues.
Treasury Secretary’s Comments
In a separate development, US Treasury Secretary Scott Bessent stated that his department is engaging with major holders of government securities to better understand their views on the federal debt limit. Bessent also reiterated his support for a strong dollar and confirmed that there were no plans to change the government’s debt-issuance strategy.
Amazon’s Earnings Miss Expectations
In after-hours trading, Amazon.com Inc. saw a drop in share prices following its earnings report. The company projected lower profits for the current quarter than analysts had anticipated, signaling that Amazon’s heavy investment in artificial intelligence services is continuing to impact its bottom line.
Economic Data in Asia
In Asia, several key data points are set to be released. The Bank of Japan is expected to announce bond purchases, while inflation data for Taiwan and a key interest rate decision in India will also be closely monitored. Analysts anticipate that India’s Reserve Bank will reduce its benchmark repurchase rate by 25 basis points to 6.25%. However, some analysts suggest there is a possibility of a larger rate cut.
Revisions to Job Growth Estimates
The annual revision to US job data, which typically does not garner much attention, is in focus this week. According to the Bureau of Labor Statistics, the preliminary estimate in August indicated a downward revision of 818,000 jobs — the largest since 2009. Economists now expect the final revision to be between 600,000 and 700,000 jobs, which would offer some relief to the market.
The standard monthly job data is expected to show an increase of 175,000 jobs last month, following stronger-than-expected increases in the two previous months. The growth seen earlier in the year had partly been attributed to recovery from severe hurricanes.
Fed’s Focus on Labor Market and Inflation
Federal Reserve officials are likely to view Friday’s jobs report and the benchmark revisions as consistent with their view that labor demand is slowing but still strong enough to support the economy. However, the central bank is also looking for more sustained progress on inflation before making any further rate decisions.
Gaurav Mallik, an economist at Pallas Capital Advisors, noted that if the jobs report shows 170,000 to 200,000 new jobs, it will likely not cause significant market volatility. But a much stronger report could reduce the likelihood of future rate cuts, while a much weaker number could raise concerns about a weakening labor market.
Fed Chair Jerome Powell has said that the central bank needs to see “serial readings” of inflation moving in the right direction before making any further rate cuts. Traders are now anticipating that the Fed’s next move will be a rate cut, likely in the middle of the year.
Commodities: Gold and Oil
In the commodities market, gold held steady after retreating from a record high on Thursday. It was the first decline in six days. Meanwhile, oil prices remained relatively unchanged after falling on Thursday. President Trump’s renewed commitment to driving down crude oil prices overshadowed his push for tougher sanctions on Iran.
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