Asian stocks rose on Tuesday, September 3, led by Japanese stocks, while the yen stabilized after weakening and declining against the dollar during the previous week.
Japanese and South Korean stocks rose, while stocks in Sydney declined, and Chinese stock indices fluctuated at the start of trading. Futures on the S&P 500 index fell ahead of Wall Street’s reopening later on Tuesday. The yen saw little change against the U.S. dollar after four consecutive sessions of decline, but it is expected to remain weak for a prolonged period due to interest rate differentials between the United States and Japan, according to Mark Matthews, Head of Asia Research at Julius Baer Bank.
Matthews stated in an interview with Bloomberg Television: “We assume the Bank of Japan’s interest rate will be half a percent by March next year, while the Federal Reserve’s funds rate will be 4.5%—that still represents a significant gap of 400 basis points. On this basis, we see the yen weakening.”
Traders will approach this month with caution, as historical data shows that September has been a difficult month for stocks in recent years. Additionally, the upcoming U.S. jobs report on Friday could determine whether history will repeat itself. The report will provide crucial insights into how quickly or slowly the Federal Reserve might cut interest rates, especially as the U.S. presidential election campaign reaches its peak.
Traders expect the beginning of a monetary easing cycle in the United States this month, with about a one-in-four chance of a 50-basis-point rate cut, according to data compiled by Bloomberg. However, strategists at JPMorgan Chase have warned that the stock market rally may stall even if the Federal Reserve starts cutting interest rates, as any policy easing would be a response to slowing or declining growth. The seasonal trend for September would also be another obstacle.
Valentin Marinov, Head of G10 Foreign Exchange Strategy at Crédit Agricole CIB, stated that jobs data indicating a very gradual slowdown in the U.S. labor market could lead traders to adjust their expectations regarding rate cuts in favor of the dollar.
Marinov told Bloomberg Television: “Markets may tend to adopt a more forgiving stance at the Federal Reserve’s September meeting, and the dollar may regain some of its gains once markets realize that the Fed will proceed with greater caution in the coming period.”
