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Asia markets brace for US jobs report

Friday 02:30 GMT

Overview

Asia’s markets were bracing for key US jobs data on Friday, leaving stock indices flat and most currencies higher against a wobbling dollar.

Within the region, attention was on the Chinese renminbi, which paused for breath after enjoying its biggest two-day rally against the dollar since the offshore market was created in 2010.

Hot topic

While currency markets are looking at the renminbi, the world’s traders are still focused on US payrolls. Expectations are for the US to have created about 175,000 jobs last month but a soft reading on Thursday of 153,000 from ADP, the private sector payroll processor, sowed some doubt.

Treasuries jumped on the news, with the yield (which rises as prices fall) on the 10-year note falling 9 basis points to 2.36 per cent and the two-year 6bp lower at 1.17 per cent.

Markets steadied in Asia, leaving the 10-year yielding 2.372 per cent and the two-year at 1.174 per cent.

Brown Brothers Harriman analysts said the hourly earnings figures in the payrolls report could be as significant as the headline job growth for gauging the inflation pressures for future interest rate rises.

“The median estimate has average hourly earnings up 0.3 per cent in December, which would bring the year-over-year rate back to its cyclical high of 2.8 per cent, said Marc Chandler, global head of currency strategy at the bank.

What to watch

Close attention is still being paid to the renminbi and the liquidity squeeze, which was the biggest cause of the past two days’ move.

The amount of renminbi held in deposits offshore fell 22 per cent last year and the drop was even more dramatic in Hong Kong, the biggest single renminbi centre offshore. This smaller pool exacerbated the recent swing, triggered by stronger data and signs China is extending its efforts to curb capital outflows.

By mid-morning the offshore renminbi was at Rmb6.8221 against the dollar, off a low of Rmb6.7826, while its onshore cousin was at Rmb6.8905 after touching Rmb6.8694.

Equities

Tokyo’s Topix was off 0.4 per cent, led by a 5 per cent fall in Fast Retailing after warm weather hit Uniqlo’s sales.

Australia’s stock market was flat but Hong Kong’s Hang Seng added 0.6 per cent, a day after climbing 1.5 per cent in its biggest one-day advance in two months.

Forex

Pause ahead of payrolls was the theme for currency traders as the dollar hovered around a three-week low on a trade-weighted basis.

That helped the Japanese yen to a three-week high of Y115.2 in New York trading, before the dollar pushed it back to Y116 in Asia.

Commodities

Australia’s trade balance illustrated the effects of the recent rally across the sector, swinging to a surplus of $1.2bn in November from a deficit of $1.1bn — its first surplus in more than two years — mainly because of the raw materials rally.

“Those large rises in export values are mostly due to rapid rises in prices rather than volumes,” said Paul Dales at Capital Economics. “The upshot is that the rise in commodity prices that has generated the trade surplus has not resulted in much higher export volumes, and that’s crucial for real GDP growth.”

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