Asia reducing risks ahead of weekend

It is clear that market participants were not doing much besides reducing risks today ahead of the US payroll data, leading Asian indices lower.

Source: Bloomberg

The Nikkei 225 slipped below 18,000, closing down 2.2% at 17,792.16, as very thin volume reflected market participants’ disinterest in taking on more risk. Part of the reason is the coming long weekend in US as Monday will be a market holiday (Labour Day), as well as the non-farm payroll (NFP) release tonight.

A stronger yen also weighed on Japanese stocks. Across the rest of Asia, KOSPI slumped 1.5%, and Hang Seng Index ended 0.5% lower.

The negative sentiment in Asia is souring the view for European and US markets. Major stock indices in Europe were trading down more than 1% soon after their opening bell. Likewise, US stock index futures were under pressure. Mainland Chinese markets remained closed until Monday.

The Japanese yen strengthened ahead of event risk. USD/JPY fell towards 119, touching as low as 119.11 during the Asian session. Meanwhile, AUD remained heavy below 0.70, which makes AUD/JPY shorts quite attractive.

The downward momentum appeared really powerful, with the cross pair trading at three-year lows, and seen within 82.90-84.30 today. Some USD pullback also helped EUR/USD head higher to mid-1.11, although with expectations of more ECB easing on the tap, outlook on the single unit currency stays on the downside.

Singapore stocks slipping

Investors in the Singapore stock market were paring risks, taking cue from the regional risk-off attitude. The Straits Times Index (STI) extended lower below the 2900 level, although the 2850 support held firm. Losses were across the board, led by banking counters.

Worries over China markets and apprehension ahead of US payroll data prompted market participants to shed risk. Yesterday, SGX announced that UOL Group, Yangzijiang Shipbuilding Holdings and SATS will replace Jardine Matheson Holdings, Jardine Strategic Holdings and Olam International as new constituents of the STI. The changes will take effect from 21 September, while the next review is earmarked for 3 December.

US Jobs data is key risk

Based on Bloomberg, economists are expecting to see 217,000 jobs added in August, which would see the jobless rate dropping to 5.2% from 5.3% previously. The question is how the markets will react to the data.

Clearly, a reading in line with the market consensus would do little to move the markets, and just underscore the solid growth in the US jobs market that we have observed for a while. To push up the probability of a September rate move, at least in the perspective of the market, a really strong print is needed.

I think many would think that any number to the north of 250,000 will qualify as a strong number. A very lacklustre figure will certainly beat back expectations of a rate move this month, and USD will be sold off.

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