Asian stocks were mostly down on Monday as investors practiced caution ahead of a string of economic readings due this week, with US nonfarm payrolls data expected to determine the extent of the Federal Reserve’s possible interest rate cut this month.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.43%, while Hong Kong’s Hang Seng index dropped 1.77%.
Japan’s Nikkei 225 tracked Wall Street’s rally on Friday, climbing 0.03% following an 8.70% rise the previous week.
China’s blue-chip CSI 300 index tumbled 1.21%, while the Shanghai Composite index slipped 0.62%.
The weakness came after the world’s second-largest economy saw improvement in the manufacturing sector. The Caixin/S&P Global manufacturing purchasing managers’ index (PMI) grew to 50.4 in August from 49.8 posted the month prior.
The flash au Jibun Bank Japan Manufacturing PMI also rose to 49.8 last month from 49.1 in July, although it remained in contraction. The S&P Global South Korea Manufacturing PMI increased to 51.9 in August from 51.4 logged the month earlier.
US Nonfarm Payrolls to Set Fed’s September Rate Cut Size
The US nonfarm payrolls report, set to be released on Friday, will be the focus of global markets this week as investors await more cues on the size of the Fed’s potential rate reduction in September.
Analysts expect to see an addition of 165,000 jobs in the previous month, up from July’s 114,000 growth. They also estimate unemployment at 4.2% for August, slightly declining from the 4.3% posted a month ago.
Stocks worldwide experienced a significant selloff after the July US jobs reading missed forecasts, further reinforcing prospects of deep rate cuts from the central bank to keep the world’s largest economy from a recession.
Markets have since entered a state of calm. Still, the upcoming nonfarm payroll data might raise the Fed’s concerns over a weakening labor market ahead of its September 17-18 policy meeting.
An underwhelming report might signal that the US economy and jobs market are at risk of collapsing, strengthening the need for an aggressive monetary policy easing, which could result in a steep repricing.
On the other hand, positive employment data is expected to have no impact on a September reduction.
The CME FedWatch tool showed that traders are pricing in a 70% likelihood of a 25 basis point (bp) cut this month while betting a 30% chance of a 50 bp reduction.
