SINGAPORE: Asian stocks edged higher while the dollar lurked near five-week lows and gold climbed to a record high on Tuesday, as investors girded for a slate of economic data this week, including the crucial U.S. labour report on Friday.
Markets widely expect the Federal Reserve to lower interest rates later this month, pricing in an 89% chance of a 25 basis point cut, but data this week will help investors gauge whether the central bank could perhaps lean toward a jumbo cut.
The focus will be on Friday’s U.S. nonfarm payrolls report, which will be preceded by data on job openings and private payrolls, providing investors and the Fed a clearer picture of the labour market that has become the centre of policy debate.
“While an outsized 50 bps rate cut in September is not the base case expectation currently, it cannot be ruled out altogether if the August jobs data shows exceptional weakness,” said Vasu Menon, managing director of investment strategy at OCBC Bank.
“This is what the Fed did in September last year after employment growth slowed down sharply between June and August 2024. However, the difference this time around is that the Fed is also concerned that tariffs may fuel inflation.”
The U.S. inflation report for August is scheduled to be released on September 11, a week before the Fed’s policy meeting.
The prospect of lower borrowing costs has kept Wall Street near record highs, while stocks in other regions have also gained in recent weeks. On Tuesday, MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.2% higher.
Japan’s Nikkei rose 0.39% after dropping more than 1% on Monday. Nasdaq futures rose 0.07% while European futures inched higher. U.S. markets were closed on Monday for a holiday leaving few cues for Asian markets.
China stocks have been on a tear buoyed by AI enthusiasm. The blue-chip CSI300 index rose 0.26% on Tuesday to hit a three-year high for the third straight session. Hong Kong’s Hang Seng index eased 0.19% in early trading after surging 2% on Monday.
The currency market also made a tepid start to Tuesday with the euro at $1.1706, while sterling hovered near two-week highs at $1.3535. The yen fetched 147.31 per dollar ahead of a crucial Japanese government bond auction.
The dollar index, which measures the U.S. currency against six others, was at 97.717, hovering near the five-week low it hit on Monday. The yield on benchmark U.S. 10-year notes was 2.6 basis points higher at 4.251% in early Asian hours.
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FED INDEPENDENCE
Efforts by President Donald Trump to fire Fed Governor Lisa Cook have raised the prospect that Trump could make more dovish appointments to the U.S. central bank that would result in easier policy. Cook is set to file fresh arguments against her firing on Tuesday.
Trump has criticized the Fed and its chair, Jerome Powell, for months for not lowering rates, and recently took aim at Powell over a costly renovation of the central bank’s Washington headquarters.
U.S. Treasury Secretary Scott Bessent said on Monday the Fed is and should be independent but said it had “made a lot of mistakes”.
In commodity markets, gold hit a record high, benefitting from the dollar’s softness and the outlook for lower U.S. rates. The metal rose to $3,503.32.
Oil prices rose on Tuesday as concerns about supply disruptions grew amid an escalation of the conflict between Russia and Ukraine. Brent crude rose 0.35% to $68.4 a barrel, while U.S. West Texas Intermediate crude was up 1.37% at $64.89 a barrel. (Reporting by Ankur Banerjee in Singapore; Editing by Jacqueline Wong)
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