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European and Asian stock markets softened alongside the dollar on Friday as traders awaited the US payrolls data which is likely to determine the size of interest rate cut from the Federal Reserve this month.
The benchmark Stoxx Europe 600 was 0.3 per cent lower in morning trade, led by declines for energy stocks and financials. Japan’s Topix closed 0.9 per cent lower on Friday, while South Korea’s Kospi was down 1.2 per cent and China’s CSI 300 index fell 0.8 per cent.
Germany’s Dax was down 0.6 per cent while the FTSE 100 in London and Cac 40 in Paris fell 0.4 and 0.2 per cent respectively. Futures indicated a more turbulent start in New York, with contracts tracking the S&P 500 and Nasdaq 100 down 0.7 and 1.2 per cent respectively.
Investors are awaiting August payroll data, before the US market open, as a guide to the Fed meeting later this month. Investors are looking for signs that the US economy has cooled faster than anticipated, potentially pushing the central bank to cut interest rates more steeply.
The Fed is expected to make its first rate cut from the current range of 5.25 to 5.5 per cent, but Fed chair Jay Powell said last month he was focused on the risks of a weaker labour market. He cautioned that the timing and pace of rate cuts was reliant on economic data.
Economists expect US employers to have added 160,000 jobs in August, according to a Reuters poll — far higher than the previous month’s figure of 114,000.
Traders are divided over whether the Fed will make a quarter-point or half-point cut. Swaps markets are pricing in just over 1 percentage point worth of cuts by the end of December. The August jobs data also takes on a further weighting after a weaker than expected forecast a month ago triggered a fierce market sell-off around the world.
“The risk appetite is rather concentrated in US data…given the sagginess of Chinese growth,” said Trinh Nguyen, senior economist for Emerging Asia at Natixis in Hong Kong.
“Markets will need reassurance of a not too slow US economy but at the same time weak enough for the Fed to not fear [an] inflation resurgence”.
Market sentiment has weakened following disappointing data on Thursday from payroll processor ADP, which showed that US private employers had added the fewest number of jobs in more than three years in August.
The dollar index, which tracks the US currency against a basket of other currencies, fell 0.1 per cent. The yen rose as much as 0.6 per cent to $142.5, its highest level since January.
US Treasuries rose, with the yield on the interest rate-sensitive two-year bonds down 0.04 percentage points at 3.716 per cent. Yields on the benchmark 10-year Treasury fell 0.03 percentage points to 3.7 per cent.
Crude oil rose after Opec+ members agreed late on Thursday to delay planned production increases for at least two months, as prices slipped to their lowest levels of the year earlier in the week. Brent, the international benchmark, added 0.2 per cent to $73.83 while West Texas Intermediate, its US counterpart, also rose 0.2 per cent, to $69.25.
