(Times of Update) — The effects of rising Treasury bonds rippled through Asian markets on Thursday, weakening the dollar and supporting the yen as investors braced for the Federal Reserve’s interest rate cuts later this month.
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The yield on 10-year Treasury notes fell eight basis points on Wednesday as a slowdown in the U.S. labor market reinforced Wall Street’s bets that the Fed would cut rates. The move weakened the dollar strength index and sent the yen higher.
Asian stock futures were mixed. Contracts for Japan fell more than 1%, while those for Australia and Hong Kong were little changed. The S&P 500 and Nasdaq 100 ended down 0.2% on Wednesday, as Nvidia suffered its worst two-day drop since October 2022, following a report that the U.S. Justice Department had issued subpoenas as part of an antitrust investigation.
On Wall Street, economists and money managers have been combing through economic data for signs of weakness that would force the Fed to begin an aggressive rate-cutting cycle. The moves in Treasuries were driven in part by a job openings report, known as JOLTS, that missed estimates and hit its lowest level since 2021. The report comes ahead of the highly anticipated payrolls data on Friday.
“Markets may not be as nervous as they were a month ago, but they’re still waiting for confirmation that the economy isn’t slowing too much,” said Chris Larkin of Morgan Stanley’s E*Trade. “So far this week, they haven’t gotten any confirmation.”
In Asia, traders will be closely watching shares of Nippon Steel Corp. after U.S. President Joe Biden reportedly blocked the Japanese steelmaker’s $14.1 billion takeover of United States Steel Corp., according to people familiar with the matter. Shares of U.S. Steel closed down 17% in New York, the biggest decline since April 2017.
Elsewhere, China is considering cutting interest rates on nearly $5.3 trillion in mortgages as authorities try to support a struggling real estate market and economy.
What size?
As the Fed prepares to begin cutting rates in a few weeks, the main question now is how big that first cut will be. The monthly U.S. jobs data, due Friday, will help answer that question. Last month’s jobs report stoked growth fears, and Fed Chairman Jerome Powell has made clear that the Fed is now more concerned about risks to the labor market than inflation.
“Markets seem to be viewing September as a toss-up between 25 and 50 basis points,” said Neil Dutta of Renaissance Macro Research. “I think a 25 basis point hike is likely to trigger the same market dynamics as canceling the July meeting. All will be well until the next data point causes investors to second-guess their decision, fueling bets that the Fed is late. Go to 50 basis points when you can, not when you have to.”
In commodities, oil fell to its lowest level in over a year as lingering concerns about weakening demand overshadowed the possibility of OPEC+ delaying supply increases. Meanwhile, gold erased earlier losses after U.S. job openings data added to…
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