By Wayne Cole
SYDNEY (Reuters) -Asian share markets followed Wall Street lower on Monday as fears for the U.S. economy returned with a vengeance, spurring investors to price in an almost certain rate cut for September and undermining the dollar.
Some early resilience in U.S. stock futures and a continued retreat in oil prices did help limit the losses, but the bleak message from the July payrolls report was hard to ignore.
Not only had revisions meant payrolls were 290,000 below where investors had thought they would be, but the three-month average slowed to just 35,000 from 231,000 at the start of the year.
“The report brings payroll growth closer in line with big data indicators of job gains and the broader growth dataset, both of which have slowed significantly in recent months,” noted analysts at Goldman Sachs.
“Taken together, the economic data confirm our view that the U.S. economy is growing at a below-potential pace.”
Neither did the reaction of President Donald Trump instil confidence, as the firing of the head of Labor Statistics threatened to undermine confidence in U.S. economic data.
Likewise, news that Trump would get to fill a governorship position at the Federal Reserve early added to worries about the politicisation of interest rate policy.
Analysts assume the appointee will be loyal to Trump alone, though the president did grudgingly concede that Fed Chair Jerome Powell would likely see out his term.
“It opens the prospect of broader support on the Fed Board for lower rates sooner rather than later,” said Ray Attrill, head of FX research at NAB. “Fed credibility, and the veracity of the statistics on which they base their policy decisions, are both now under the spotlight.”
Markets moved quickly to price in a lot more easing with the probability of a September rate cut swinging to 90%, from 40% before the jobs report.
Futures extended the rally on Monday to imply 65 basis points of easing by year-end, compared to 33 basis points pre-data.
Markets have essentially already eased for the Fed with two-year Treasury yields down another 4 basis points at 3.661%. They tumbled almost 25 basis points on Friday in the biggest one-day drop since August last year.
DOLLAR DENTED
The prospect of lower borrowing costs offered some support for equities and S&P 500 futures inched up 0.1%, while Nasdaq futures rose 0.2%.
Asian share markets, however, were still catching up with Friday’s retreat and the Nikkei fell 2.1%, while South Korea dipped 0.2%.
MSCI’s broadest index of Asia-Pacific shares outside Japan broke the mould and firmed 0.3%.
Wall Street has also taken comfort in an upbeat results season. Around two-thirds of the S&P 500 have reported and 63% have beaten forecasts. Earnings growth is estimated at 9.8%, up from 5.8% at the start of July.
Companies reporting this week include Disney, McDonald’s, Caterpillar and some of the large pharmaceutical groups.
The dismal U.S. jobs data did put a dent in the dollar’s crown of exceptionalism, snuffing out what had been a promising rally for the currency.
The dollar dipped 0.1% to 147.24 yen, having shed an eye-watering 2.3% on Friday, while the euro stood at $1.1585 after bouncing 1.5% on Friday.
The dollar index was pinned at 98.659, having been toppled from last week’s top of 100.250.
Sterling was more restrained at $1.3287 as markets are 87% priced for the Bank of England to cut rates by a quarter point at a meeting on Thursday.
The BoE board itself is expected to remain split on easing, while markets still favour two further cuts by the middle of next year.
In commodity markets, gold was flat at $3,361 an ounce, having climbed more than 2% on Friday. [GOL/]
Oil prices extended their latest slide as OPEC+ agreed to another large rise in output for September, which completely reverses last year’s cuts of 2.2 million barrels per day. [O/R]
Brent dropped 0.6% to $69.24 a barrel, while U.S. crude also fell 0.6% to $66.93 per barrel.
(Reporting by Wayne Cole; Editing by Jacqueline Wong)
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