Gauges in Japan dipped, while those in Australia edged up. That came after the US equity benchmark index declined for a second straight session. Stock-index futures for the S&P 500 and the Nasdaq 100 indexes also retreated in early Asian trading Tuesday.
The yen, a traditional safe-haven currency, gained against the dollar to trade around 154.85. The Bank of Japan is expected to lift its key rate to the highest level in three decades on Friday. A Bloomberg gauge of the dollar fell for a second consecutive day, trading around levels last seen in early October.
The moves underscored a sense of caution building in the final weeks of a year marked by economic resilience, robust corporate profits and Federal Reserve easing. Investors will have greater clarity on whether the narrative will hold, with key economic data set for release this week.
“Investors appear indecisive about making bold moves ahead of a heavy plate of high-profile economic data,” said Jose Torres at Interactive Brokers.
Following the Fed’s latest decision to slash rates, the November jobs report due on Tuesday is expected to show a sluggish labor market. The reading will also include an estimate of October payrolls — figures that were delayed by the federal shutdown, while the US consumer price index is scheduled for Thursday.
Treasury two-year yields steadied after edging down on Monday amid bets the Fed will cut rates twice next year to support the jobs market even as inflation shows signs of stickiness. The US 10-year yield traded at around 4.17%. With the Fed still appearing to be more focused on labor-market weakness than inflation, we’re likely facing a “bad news is good” scenario for the jobs report, according to Chris Larkin at E*Trade from Morgan Stanley.
“As long as the numbers don’t suggest employment is falling off a cliff, the markets may embrace soft data because it could lead to a more-dovish Fed,” he said.
Fed Governor Stephen Miran argued the policy stance is unnecessarily restrictive. Fed Bank of New York President John Williams said policy is well positioned for next year following last week’s reduction. His Boston counterpart Susan Collins noted the rate decision was a “close call” as she’s concerned about high inflation.
Investors in Japan are focusing on the yen with Bank of Japan Governor Kazuo Ueda widely expected to raise rates on Friday. The path ahead has become murkier as the government’s need for cheap financing clashes with a weakening yen that’s driving up import prices.
Benchmark Japanese 10-year bond yields hit 1.97%, the highest in 18 years, earlier this month, prompting Ueda last week to send a warning shot to say they’re rising “somewhat fast.”
Back in the US, there are obvious data-quality concerns given that the Bureau of Labor Statistics has been playing catchup following the government shutdown, according to Ian Lyngen at BMO Capital Markets. Therefore, investors might take a more cautious view to trading this week’s key data prints.
If market expectations are right, that could set the stage for another solid run for Treasuries, which are headed for their best year since 2020.
“The insights within the payrolls and inflation reports will nonetheless set the tone for the US rates market as year-end, holiday-trading mode quickly approaches,” Lyngen noted.
