Asia: Markets battle to match Wall Street rally ahead of US inflation

ASIAN markets mostly rose on Tuesday (Sep 10) after a rally on Wall Street as traders try to assess the outlook for US interest rates following last week’s disappointing jobs report, with focus on the release of key inflation data.

With last Friday’s non-farm payrolls showing that the labour market slowing faster than expected, there is a growing worry that the world’s top economy is heading for a recession, which sent stocks tumbling.

While the Federal Reserve is widely expected to cut rates at next week’s meeting, debate surrounds whether it will be 25 or 50 basis points, with some arguing that going for the bigger option could suggest that decision-makers are worried.

Analyst Stephen Innes said there were numerous factors that could sway nervous investors ahead of the Fed’s decision.

Wednesday’s consumer price index is the first major release, and a big miss to the downside could ramp up bets on a 50-point cut but add to concerns about the economy.

“While the labour market is cooling, it’s far from frozen, and second-quarter GDP was revised up to a solid 3 per cent annualised gain, keeping the soft-landing narrative firmly on the table,” he wrote in his Dark Side Of The Boom newsletter.

Still, he added: “For now, the Fed likely won’t feel the need to hit the panic button with a jumbo rate cut, but stock traders… haven’t fully grasped the depth of the potential labour market weakness yet.

“That leaves the door open for further, potentially sizeable market corrections. Expect the worry meter to creep higher if the employment picture deteriorates further.”

All three main indices on Wall Street rose more than 1 per cent on Monday after last Friday’s steep, tech-led retreat.

In early trade on Tuesday, Hong Kong, Tokyo, Seoul, Sydney, Singapore, Taipei, Wellington, Manila and Jakarta all rose, though Shanghai dipped.

Fresh worries about China’s economy are also dampening sentiment, with another below-forecast inflation reading on Monday reinforcing the view that moves to boost consumer demand and business activity have not taken hold.

August trade data on Tuesday will be eyed for clues, with imports expected to have slowed significantly from July.

The country’s leaders are now facing pressure to unveil fresh stimulus for the world’s number two economy, though they have shown little desire to embark on the bazooka-like spending seen during the global financial crisis.

On currency markets the US dollar strengthened, with the euro weighed by an expected rate cut by the European Central Bank on Thursday as inflation edges lower. AFP