AFP

Asian markets struggled again Friday and the dollar held gains as rate hike expectations grew, with traders now focusing on a key US jobs report later in the day.

Oil prices rose on fading expectations for an Iran nuclear deal anytime soon, but they remained under severe pressure from a range of issues including the strengthening dollar, Covid lockdowns in China, and worries about a demand-sapping recession.

Healthy readings on US factory activity, unemployment claims and private jobs creation indicated the world’s top economy remained strong despite rising interest rates and four-decade-high inflation.

But analysts said the figures were a case of “good news in bad news” as they would give the US Federal Reserve more room to keep tightening monetary policy, with officials lining up to commit to beating inflation even if that causes a recession. 

Bets are increasing on a third successive 75-basis-point increase at its September meeting. 

OANDA’s Edward Moya warned Fed officials could even start considering rising into 2023, with inflation data later this month becoming increasingly important.

“If the economy remains resilient over the next few months, the Fed-funds futures market might believe the Fed won’t be done tightening at the end of year,” he wrote in a commentary.

“Markets might start pricing in a February rate hike as well, if pricing pressures don’t show further signs of easing with the September 13th inflation report.”

Wall Street ended with a late rally, with the Dow and S&P 500 snapping a four-day retreat, though the Nasdaq extended its losing streak. European markets fell again after record inflation figures ramped up expectations the European Central Bank will announce a big increase in costs next Thursday.

Asia continued to wobble, though there were some positives.

Tokyo, Hong Kong, Sydney, Wellington and Taipei fell, while Shanghai, Seoul, Manila and Jakarta edged up.

Meera Pandit at JPMorgan Asset Management said the near-term outlook was not positive.

“We don’t have a lot of reasons to be bullish in this type of environment for the next couple of weeks and months,” she told Bloomberg Television.

– Dollar gains –

With US rates expected to keep rising, the dollar has rallied to highs not seen for decades including against the pound and euro,

On Thursday, it broke 140 yen for the first time since 1998.

Expectations are that it could strengthen further as the Bank of Japan keeps rates ultra-low to kickstart the economy, while analysts said an intervention to prop up the yen was unlikely as the effects would be brief.

The rising greenback was adding to downward pressure on oil, which is priced in dollars, while demand hopes were dealt a hefty blow Thursday by news that China had effectively locked down around 20 million people in Chengdu to fight a Covid outbreak.

The closure of the tech manufacturing hub follows a similar shutdown of Shanghai, which sent shockwaves through the economy, and has battered hopes for a recovery in the world’s number-two economy.

“Lockdowns/mass testing continues to impede stimulus efforts to revive the economy, with announced stimulus to date unlikely to gain much traction if the zero-Covid policy continues,” said National Australia Bank’s Tapas Strickland.

“Given Chengdu is also a production hub for high tech manufacturing,” global supply chains will likely continue to be disrupted, he added.

Crude, which has lost all the gains made in the aftermath of Russia’s February invasion of Ukraine, rose Friday after US officials said they had received a new response from Iran on reviving a nuclear deal but that it was not “constructive”.

– Key figures at around 0300 GMT –

Tokyo – Nikkei 225: DOWN 0.2 percent at 27,604.37 (break)

Hong Kong – Hang Seng Index: DOWN 0.7 percent at 19,461.46

Shanghai – Composite: UP 0.1 percent at 3,186.68

Dollar/yen: DOWN at 140.12 yen from 140.20 yen on Thursday

Euro/dollar: UP at $0.9960 from $0.9947

Pound/dollar: UP at $1.1546 from $1.1542

Euro/pound: UP at 86.26 pence from 86.16 pence

West Texas Intermediate: UP 1.3 percent at $87.72 per barrel

Brent North Sea crude: UP 1.2 percent at $93.43 per barrel

New York – Dow: UP 0.5 percent at 31,656.42 (close)

London – FTSE 100: DOWN 1.9 percent at 7,148.50 (close)

Asian markets struggled again Friday and the dollar held gains as rate hike expectations grew, with traders now focusing on a key US jobs report later in the day.

Oil prices rose on fading expectations for an Iran nuclear deal anytime soon, but they remained under severe pressure from a range of issues including the strengthening dollar, Covid lockdowns in China, and worries about a demand-sapping recession.

Healthy readings on US factory activity, unemployment claims and private jobs creation indicated the world’s top economy remained strong despite rising interest rates and four-decade-high inflation.

But analysts said the figures were a case of “good news in bad news” as they would give the US Federal Reserve more room to keep tightening monetary policy, with officials lining up to commit to beating inflation even if that causes a recession. 

Bets are increasing on a third successive 75-basis-point increase at its September meeting. 

OANDA’s Edward Moya warned Fed officials could even start considering rising into 2023, with inflation data later this month becoming increasingly important.

“If the economy remains resilient over the next few months, the Fed-funds futures market might believe the Fed won’t be done tightening at the end of year,” he wrote in a commentary.

“Markets might start pricing in a February rate hike as well, if pricing pressures don’t show further signs of easing with the September 13th inflation report.”

Wall Street ended with a late rally, with the Dow and S&P 500 snapping a four-day retreat, though the Nasdaq extended its losing streak. European markets fell again after record inflation figures ramped up expectations the European Central Bank will announce a big increase in costs next Thursday.

Asia continued to wobble, though there were some positives.

Tokyo, Hong Kong, Sydney, Wellington and Taipei fell, while Shanghai, Seoul, Manila and Jakarta edged up.

Meera Pandit at JPMorgan Asset Management said the near-term outlook was not positive.

“We don’t have a lot of reasons to be bullish in this type of environment for the next couple of weeks and months,” she told Bloomberg Television.

– xxxx –

With US rates expected to keep rising, the dollar has rallied to highs not seen for decades including against the pound and euro,

On Thursday, it broke 140 yen for the first time since 1998.

Expectations are that it could strengthen further as the Bank of Japan keeps rates ultra-low to kickstart the economy, while analysts said an intervention to prop up the yen was unlikely as the effects would be brief.

The rising greenback was adding to downward pressure on oil, which is priced in dollars, while demand hopes were dealt a hefty blow Thursday by news that China had effectively locked down around 20 million people in Chengdu to fight a Covid outbreak.

The closure of the tech manufacturing hub follows a similar shutdown of Shanghai, which sent shockwaves through the economy, and has battered hopes for a recovery in the world’s number-two economy.

“Lockdowns/mass testing continues to impede stimulus efforts to revive the economy, with announced stimulus to date unlikely to gain much traction if the zero-Covid policy continues,” said National Australia Bank’s Tapas Strickland.

“Given Chengdu is also a production hub for high tech manufacturing,” global supply chains will likely continue to be disrupted, he added.

Crude, which has lost all the gains made in the aftermath of Russia’s February invasion of Ukraine, rose Friday after US officials said they had received a new response from Iran on reviving a nuclear deal but that it was not “constructive”.

– Key figures at around 0300 GMT –

Tokyo – Nikkei 225: DOWN 0.2 percent at 27,604.37 (break)

Hong Kong – Hang Seng Index: DOWN 0.7 percent at 19,461.46

Shanghai – Composite: UP 0.1 percent at 3,186.68

Dollar/yen: DOWN at 140.12 yen from 140.20 yen on Thursday

Euro/dollar: UP at $0.9960 from $0.9947

Pound/dollar: UP at $1.1546 from $1.1542

Euro/pound: UP at 86.26 pence from 86.16 pence

West Texas Intermediate: UP 1.3 percent at $87.72 per barrel

Brent North Sea crude: UP 1.2 percent at $93.43 per barrel

New York – Dow: UP 0.5 percent at 31,656.42 (close)

London – FTSE 100: DOWN 1.9 percent at 7,148.50 (close)

The number of “Help Wanted” signs may have decreased across the United States in August, but the job situation still remains tense, official figures are expected to show Friday.

According to consensus, the unemployment rate for August should fall somewhere around 3.5 percent when official data is released at 8:30 am (1230 GMT).

If the estimate turns out to be true, it would be the same rate as July when unemployment first returned to its pre-pandemic levels, which had been the lowest in 50 years.

Job creation, on the other hand, is expected to have slowed sharply, falling to 300,000 — almost half July’s number.

Data for private sector jobs created in August already disappointed: American employers ratcheted back their hiring in the month to 132,000, according to data published Wednesday by payroll firm ADP, a far cry from the 315,000 jobs that had been expected.

“We think that these numbers suggest a shift to a more moderate pace of hiring,” Nela Richardson, chief economist for ADP, said in a conference call.

Firms of all sizes are trying “to read what has become a complex economic picture” due to high inflation and a lack of workers at a moment when employers are looking to hire on a large scale.

Neither an economic slowdown, fears of recession nor action taken by the Federal Reserve to curb soaring inflation have deflated the hot job market. 

In July, the labor market demonstrated particular dynamism when it returned to its pre-pandemic level.

The unemployment rate fell to a historically low 3.5 percent as the 22 million jobs lost due to Covid-19 returned.

By the end of the month, there were more than 11 million job openings, or two for every job seeker. Just over four million Americans quit their jobs in July, and the same held true for June.

– ‘Some pain’ –

Meanwhile, weekly jobless claims — which provide insight into layoffs — fell almost every week in August and remain at historically low levels.

“Labor market conditions remain tight despite fairly weak economic growth,” said Nancy Vanden Houten, chief economist for Oxford Economics, in a note released Thursday.

US GDP contracted in the first two quarters of 2022, which falls under the classic definition of a recession.

But because of its glaringly robust job market, the US economy doesn’t quite seem to fall under the recession label for the moment.

The August jobs report data is expected to strengthen the Federal Reserve’s commitment to raising interest rates.

The Fed’s rate-hiking fight against high inflation will likely result in an employment slowdown and even a rise in the unemployment rate.

Federal Reserve chair Jerome Powell hammered home this point last week at a conference in Jackson Hole, Wyoming, warning of “some pain to households and businesses,” as well as a “softer labor market.”

With companies having faced a labor shortage for more than a year, many are offering higher wages, which is in turn driving up prices.

Amid the soaring inflation, the Fed has been gradually raising its key rate, making credit more expensive and thus slowing consumption as well as pressure on prices.

It is expected to raise rates again at its next meeting on September 20 and 21. To determine the extent of the rate hike, it will take Friday’s employment figures into serious consideration.

A slowdown in the labor market could indicate that the Fed’s rate hikes are finally bearing fruit, whereas a tight labor market would lead the Fed to act more forcefully.

Inflation, at its highest in 40 years, slowed to 8.5 percent over the previous year in July, according to the CPI index.