- Risk aversion likely to prevail again this week: Shinkin Asset
- Aussie dollar could soon come under severe strain: IG Markets
The outlook for Asian stocks is deteriorating as the worse-than-expected US payrolls report on Friday undermined earlier optimism over a soft landing for the US economy, analysts say.
Shares in technology-heavy markets such as Japan and South Korea may suffer due their close correlations with the global economic outlook, said Hebe Chen, an analyst at IG Markets Ltd. in Melbourne. The yen is set to gain from an increase in risk aversion, though it’s unlikely to strengthen as far as 140 per dollar, said Jun Kato, chief market analyst at Shinkin Asset Management Co. in Tokyo.
Here is a selection of comments from analysts:
IG Markets Ltd. (Hebe Chen, an analyst in Melbourne)
Asian stock markets, especially tech-driven ones like Japan, Taiwan, and South Korea, are set to brace for a storm with their economies acutely sensitive to the brewing global downturn.
In the currency market, a weakening US dollar might provide some short-term support to Asian currencies. However, if the dark clouds of a struggling US economy spread globally, risk-sensitive currencies like the Aussie could soon come under severe strain.
Shinkin Asset Management Co. (Jun Kato, chief market analyst in Tokyo)
I don’t think the US jobs report was that bad. However, the US stock market was weak and USD/JPY was heavy on the upside at the 143 yen level, so risk aversion is likely to prevail again this week.
Since the labor market was not as much of a major disappointment, despite risk aversion, I do not think USD/JPY will move below 140 yen.
Sumitomo Mitsui Banking Corp (Hirofumi Suzuki, chief foreign-exchange strategist in Tokyo)
Slightly weaker-than-expected US jobs report will not prompt the Fed to cut rates by 50 basis points at its September meeting. However, together with the past revisions, the result leaves the possibility of a 50 basis-point rate cut, depending on indicators from next month onward.
The result, which leaves expectations for a significant rate cut in the future, will put downward pressure on the dollar in the foreign-exchange market.
In particular, USD/JPY is likely to move lower in the near term due to the increased volatility in Japanese equities since last month. Depending on how the stock market performs, there is a possibility that dollar could break below 140 yen by the end of the week.
Convera Europe SA (Boris Kovacevic, global macro strategist)
Investors hoping to get some clarity on the trajectory of the US labor market and therefore Fed policy from the non-farm payrolls report have been disappointed.
Weaker US growth and heightened expectation of aggressive Fed easing are denting the US dollar’s appeal and are helping the Japanese yen push below 143.
The US economy is cooling and will eventually lead to lower policy rates. These factors will support the yen. Japanese equities could stomach a rising yen as long as the global soft landing narrative is intact. Once it starts falling apart, the pressure from an appreciating currency and weaker global growth would weigh on equities.
Capital.Com Inc. (Kyle Rodda, senior market analyst in Melbourne)
Most crucially the US dollar rallied on Friday, in a sign that the markets no longer believe in a US economic soft landing and are positioning for a tightening of financial conditions typical of a recession.
Asian markets are set for a very bearish session, with futures tumbling and anxiety heightened about similar turmoil to what happened in August after the non-farm payrolls.
DBS Bank Hong Kong Ltd. (Carie Li, global strategist in Hong Kong)
There’s a risk that markets may have overpriced the Fed rate cuts. So global stocks can trade within a range and have some correction. A 25 basis-point cut is more likely.
There is another risk, which is that the market is kind of like self-reinforcing. When companies get concerned about the economic outlook, they start to increase layoffs, making consumers feel the labor-market outlook is becoming concerning and they in turn spend less and accelerate the economic slowdown.
Wilson Asset Management (Matthew Haupt, a portfolio manager in Sydney)
Near term, the weaker job numbers adds to the probability of a faster slowdown than currently anticipated and importantly drives a larger divergence between Fed policy and the BOJ and will flare up some of that volatility we saw last time this happened.
There’s likely to be some more short-term downside for risk assets as positions are likely to unwind as volatility will likely remain elevated until we get some data to stabilize the potential downside scenario we are seeing develop. Expect most weakness in Japan at this stage with all markets to suffer as well.
Written by: Daisuke Sakai and Georgina McKay — With assistance from Abhishek Vishnoi and Winnie Hsu @Bloomberg
The post “Asia Stock Outlook Worsens as Downturn Fears Grow, Analysts Say” first appeared on Bloomberg