Asian Markets Slide on Weak US Data and Geopolitical Tensions
Asian shares and US Treasury yields fell on Friday, August 2nd, 2023, as investors reacted to weaker-than-expected US factory data and escalating geopolitical tensions. The Swiss franc and Japanese yen rose on safe-haven bids.
US Manufacturing Activity Slumps
A measure of US manufacturing activity dropped to an eight-month low in July, amid a slump in new orders. This data, released on Thursday, came just after separate figures revealed a rise in new unemployment benefit applications.
The weak data spooked investors, sparking broad risk-off moves across markets. This occurred even after the US Federal Reserve signaled a possible rate cut in September.
Geopolitical Tensions Add to Concerns
Geopolitical tensions also weighed on sentiment. The Israeli military announced the death of Mohammed Deif, head of Hamas' military wing, in an airstrike last month. This followed the killing of Hamas' political leader, Ismail Haniyeh, in Tehran.
Asian Markets Tumble
MSCI's broadest index of Asia-Pacific shares outside Japan slumped 0.8% in early trading, tracking a sharp selloff on Wall Street. Japan's Nikkei suffered heavy losses, tumbling 5% and falling below the 37,000 level for the first time since April.
The Nikkei's decline was largely driven by sharp yen gains after the Bank of Japan raised interest rates and unveiled a plan to slow its bond buying. The yen hovered near a four-month high and was eyeing a 3% gain for the week.
US Treasury Yields Fall
Reflecting investor worries about a US economic slowdown, the 10-year Treasury yield fell to a six-month low. The two-year yield also slumped to its lowest level since May 2023.
Futures now point to a roughly 29% chance of a 50-basis-point cut from the Fed in September.
Focus on US Nonfarm Payrolls
Investors are now turning their attention to the closely watched US nonfarm payrolls report later on Friday. This report will provide further clues on the health of the labor market and the broader economy.
"Clearly, all the focus now falls on U.S. nonfarm payrolls in the session ahead," said Chris Weston, head of research at Pepperstone. "Poor U.S. job numbers will not be digested well at all.