Asian markets exhibited a mixed trend on Monday, with gold reaching record highs above $2,100 at the onset of a week marked by crucial economic data releases. Investors are closely watching these indicators, which will influence market expectations regarding early and aggressive interest rate cuts by major central banks in the coming year.
The U.S. November payrolls report, scheduled for Friday, holds particular significance. Analysts suggest it needs to be robust enough to support the notion of an economic soft landing but not so strong as to jeopardize the possibility of easing. Median forecasts anticipate a 180,000 rise in payrolls, maintaining the unemployment rate at 3.9%.
Despite the consensus, some analysts, like Goldman Sachs, project potential upside risks, forecasting a 238,000 increase in payrolls, including workers returning from strikes, and a jobless rate of 3.8%.
Concerns persist about the Israel-Hamas conflict potentially escalating into a broader conflict, with three commercial vessels under attack in the southern Red Sea.
In the Asia-Pacific region, MSCI’s broadest index outside Japan recorded a 0.3% gain, driven by positive performances in South Korea and Australia. Meanwhile, Japan’s Nikkei experienced a 0.6% dip, influenced by the strengthening yen.
Chinese blue chips saw a 0.5% decline, and the country’s central bank maintained a strong fix for the yuan. Later in the week, trade figures for China will be released, with a recent trend of softening exports to the U.S., overshadowing gains in Asia.
European futures, including EUROSTOXX 50 and FTSE, remained largely unchanged. S&P 500 futures dipped 0.2%, following Friday’s closure at a 20-month high, while Nasdaq futures lost 0.3%. The S&P 500, having gained 19% this year, is only 4% away from its all-time peak.
The recent market surge is fueled by expectations that the Federal Reserve might cut rates. Fed Chair Jerome Powell, on Friday, refrained from pushing back against market pricing for aggressive rate cuts. Futures now suggest a 60% chance of a Fed rate cut as early as March, up from 21% a week ago.
The turnaround in Treasuries has been remarkable, with two-year yields falling 41 bps in a week. Some profit-taking on Monday nudged 10-year yields to 4.25%, still below the October peak of 5.02%.
Bank of America’s global economist, Claudio Irigoyen, predicts a soft landing for the U.S. economy, with the Fed starting to cut rates by 25 bps per quarter from June until reaching a terminal rate of 3% in 2026.
Such a scenario is considered positive for emerging markets, with returns historically favorable after the last Fed hike.
Central bank meetings in Canada and Australia this week are expected to keep rates unchanged.
The decline in Treasury yields weakened the dollar, particularly against the yen, which slid 1.8% last week. Speculation about the Bank of Japan’s policy unwinding adds pressure on yen carry trades.
The euro remained flat at $1.0874, having climbed recently but facing a reversal last week due to softer inflation data. The dive in yields and the dollar has benefited gold, which added 0.9% to $2,088 an ounce, after reaching a record of $2,111.39 an ounce.
Oil prices, however, faced challenges amid doubts about OPEC+ maintaining output cuts and rising U.S. oil production. Brent eased 51 cents to $78.37 a barrel, while U.S. crude fell 44 cents to $73.63.