Stock Selloff Takes Breather as Dollar Stabilizes: Markets Wrap

(Bloomberg) — Asian stocks regained some ground after a global selloff as traders awaited this week’s US payrolls data to gauge the extent of the Federal Reserve’s easing. The dollar steadied.

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The MSCI Asia Pacific Index rose 0.5% after falling more than 2% on Wednesday, its biggest drop since the Aug. 5 rout. South Korea’s Kospi jumped more than 1%, led by a rebound in the shares of chipmakers. Japan’s benchmarks fluctuated following the yen’s strength.

Treasuries were steady after the 10-year yield dropped eight basis points in the prior session, as a slowdown in the US labor market bolstered bets on steep rate cuts by the Fed. The move weakened an index of dollar strength by 0.3% on Wednesday, and supported gains in Australian and New Zealand bonds.

Global financial markets have displayed outsized reactions to US economic data as doubts grow over the Fed’s ability to engineer a soft landing. Skepticism over the artificial intelligence hype has also hurt risk assets, with Nvidia Corp. seeing its worst two-day plunge since October 2022. Focus now turns to the US payrolls data due Friday, one of the most important data points before the Fed’s decision later this month.

“The markets may not be as nervous as they were a month ago, but they’re still looking for confirmation the economy isn’t cooling off too much,” said Chris Larkin at E*Trade from Morgan Stanley. “So far this week, they haven’t gotten it.”

US futures edged higher in Asian trading after the S&P 500 and Nasdaq 100 ended Wednesday down 0.2%.

The yen pared some of its earlier strength. The currency was supported by a surprise increase in real wages that keeps the Bank of Japan on track for another rate hike.

Shares of Nippon Steel Corp. snapped a three-day drop. The Japanese steelmaker is in focus after US President Joe Biden was said to block its $14.1 billion takeover of United States Steel Corp.. Shares of US Steel closed 17% lower in New York, the biggest decline since April 2017.

Elsewhere, China is considering cutting interest rates on as much as $5.3 trillion of mortgages as authorities attempt to shore up the battered property market and economy. JPMorgan Chase & Co. dropped its buy recommendation for the nation’s stocks, citing weak policy support and potential volatility linked to the US presidential election.

“There is insufficient policy support, both monetary and fiscal,” Claudio Irigoyen, head of global economics research for Bank of America, said on Bloomberg Television. “It is going to be more difficult to achieve the targets of 5% unless we have more policy support.”

Meanwhile, the Bank of Korea said its economy shrank as initially estimated in the second quarter. The data gives policymakers added incentive to shift their focus to supporting growth momentum after inflation slowed in line with projections.

With the Fed set to begin cutting rates in a few weeks, the main question now is how big the first reduction will be. Monthly US employment data due Friday will help determine the answer. The jobs report last month stoked growth fears and Chair Jerome Powell has made it clear the Fed is now more concerned about risks to the labor market than inflation.

“Markets seem to see September as a coin flip between 25 and 50 basis points,” said Neil Dutta at Renaissance Macro Research. “I think going 25 basis points risks the same market dynamic as skipping the July meeting. It’ll be fine until the next data point makes investors second guess the decision, fueling bets the Fed is behind the curve. Go 50 when you can, not when you must.”

In commodities, oil steadied near the lowest close since June 2023 as an industry report pointed to a big draw in US crude stockpiles. Meanwhile, gold traded at around $2,495 after finding support following the US job openings data.

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