SYDNEY — Share markets found some much needed support in Asia on Monday as the prospect of lower borrowing costs helped soothe concerns about the US economy, though the long-term credibility of US policy remained in doubt.
A buy-the-dip mentality led to a bounce in Wall Street and European stock futures, and allowed the dollar to stabilise after Friday’s payrolls-induced retreat.
Treasuries ran into some profit-taking after their huge gains but fund futures still imply an 85 percent chance the Federal Reserve will cut rates in September, and ease by 100 basis points or more by this time next year.
The prospect of a shift in rates was the only silver lining to a dire payrolls report in which downward revisions left the three-month average of jobs growth at 35,000 from 231,000 at the start of the year.
“The report brings payroll growth closer in line with big data indicators of job gains and the broader growth dataset, both of which have slowed significantly in recent months,” said analysts at Goldman Sachs.
“Taken together, the economic data confirm our view that the US economy is growing at a below-potential pace.”
Neither did the reaction of President Donald Trump instil confidence, as the firing of the head of Labor Statistics threatened the credibility of US economic data.
Likewise, news that Trump would get to fill a governorship position at the Federal Reserve early added to worries about the politicisation of interest rate policy.
Analysts assume the appointee will be loyal to Trump alone, though the president did grudgingly concede that Fed Chair Jerome Powell would probably see out his term.
“It opens the prospect of broader support on the Fed Board for lower rates sooner rather than later,” said Ray Attrill, head of FX research at NAB.
“Fed credibility, and the veracity of the statistics on which they base their policy decisions, are both now under the spotlight.”
Markets have essentially already eased for the Fed, with two-year Treasury yields down almost 25 basis points on Friday in the biggest one-day drop since August last year.
The drop in global yields seemed to help equities, with S&P 500 futures and Nasdaq futures both bouncing 0.4 percent. EUROSTOXX 50 futures gained 0.6 percent, while FTSE futures rose 0.5 percent and DAX futures 0.4 percent.
MSCI’s broadest index of Asia-Pacific shares outside Japan firmed 0.6 percent, aided by a 0.8 percent rally in South Korea stocks.
Japan’s Nikkei 22 percent fell 1.6 percent, in part weighed by Friday’s rebound in the yen, while Chinese blue chips were flat.
Wall Street has taken comfort in an upbeat results season. About two-thirds of the S&P 500 have reported and 63 percent have beaten forecasts. Earnings growth is estimated at 9.8 percent, up from 5.8 percent at the start of July.
Companies reporting this week include Disney, McDonald’s, Caterpillar and some of the large pharmaceutical groups.
