On Friday, Asian shares experienced a subdued atmosphere as investors braced themselves for the crucial payrolls report. This hesitance in the market was further exacerbated by significant losses suffered by Tesla, arising from a high-profile feud between President Donald Trump and billionaire Elon Musk.
This week’s run of soft economic data has left markets on edge, with fears of a potential downside surprise looming over the upcoming monthly payrolls report. Investors are increasingly concerned about the implications of weak data, which could amplify fears of stagflation and intensify pressure on the Federal Reserve to expedite policy easing.
In the futures market, Nasdaq futures remained flat, while S&P 500 futures edged up by 0.1%. Notably, a recent agreement between the U.S. and China aimed at de-escalating tensions has provided a glimmer of hope. Luke Yeaman, chief economist at the Commonwealth Bank of Australia, noted that both nations seem to have established an economic 'pain threshold.' However, he cautioned that despite this, trade tensions will persist, and significant escalations are still likely. Yeaman emphasized that a comprehensive U.S.-China trade agreement is unlikely to be finalized by the August 14 deadline.
Weaker-than-expected labor market data, including an alarming 47% year-on-year surge in Challenger layoffs and a notable downside surprise in ADP's private payrolls, have tempered expectations for the forthcoming payrolls report. Market forecasts suggest an anticipated rise of approximately 130,000 jobs for May, with the unemployment rate expected to hold steady at 4.2%. Any unexpected weakness in the data could prompt the next U.S. rate cut to be moved forward, potentially sparking a significant rally in Treasuries.
Currently, futures indicate a low probability of a rate cut until September, with about a 93% likelihood priced in for that month, followed by another potential move in December. The yields on the benchmark ten-year Treasuries remained stable at 4.3925%, having increased by 3 basis points overnight, deviating from a one-month low. Analysts at TD Securities predict that payroll growth will continue to lose momentum in May, forecasting a below-consensus figure of 110,000 jobs. They highlighted that the market has recently fixated on tariffs and deficits, moving macroeconomic factors to the background, although they expect any downside surprises to elicit a more substantial market reaction.
On Friday, the dollar remained flat against its major peers but is projected to experience a weekly decline of 0.7% due to soft economic indicators. Meanwhile, the euro gained some traction, reaching a six-week high of $1.1495 after the European Central Bank cut rates while signaling an end to its year-long policy easing cycle. Investors are no longer anticipating a rate move in July, with the majority expecting any further adjustments to occur in December.
In the commodities market, oil prices dipped slightly but are on track for weekly gains fueled by ongoing supply concerns. U.S. crude futures fell by 0.1% to $65.29 a barrel, though they are up 2.1% for the week. In the precious metals sector, gold prices increased by 0.3%, reaching $3,362 an ounce and marking a weekly rise of 2.2%.
Editing by Sam Holmes
