Asian markets and U.S. Treasury yields experienced declines on Friday as investors sought safety in the Swiss franc and yen, following disappointing U.S. factory data that fueled concerns over the economic outlook.
Nikkei Hits Four-Year Low Amid Yen Surge
Japan’s Nikkei Index is poised for its worst day in over four years, driven down by a weakening Wall Street and a surging yen. The Nikkei fell more than 5% to dip below the 37,000 level for the first time since April, marking a 4.89% drop. This decline is attributed to a sharp rise in the yen and uncertainty surrounding potential domestic interest rate hikes.
U.S. Manufacturing Data Sparks Broad Risk-Off Sentiment
The U.S. manufacturing sector showed unexpected weakness, with a key measure of manufacturing activity falling to an eight-month low in July. The decline followed a rise in new unemployment claims to an 11-month high. This poor data heightened investor fears, despite earlier signals from the Federal Reserve about a possible rate cut as soon as September.
Geopolitical Tensions Add to Market Jitters
The geopolitical landscape also contributed to market unease. The Israeli military confirmed the death of Hamas military leader Mohammed Deif in an airstrike in Gaza last month. This announcement followed the death of Hamas’ political leader Ismail Haniyeh in Tehran, intensifying regional tensions.
Currency and Bond Markets Reflect Safe-Haven Flows
In the currency markets, the yen strengthened to a four-month high, trading at 149.65 per dollar. The Swiss franc also appreciated, reaching its strongest level since early February at 0.8720 per dollar. Conversely, the British pound fell to $1.2723 following the Bank of England’s rate cut from a 16-year high.
In the bond market, the 10-year U.S. Treasury yield fell to a six-month low of 3.9440%, while the two-year yield dropped to 4.1090%, its lowest since May 2023. Investors flocked to these safe-haven assets, reflecting heightened concerns about the U.S. economic slowdown. Futures indicate a 29% chance of a 50-basis-point rate cut by the Fed in September.
Focus Shifts to U.S. Nonfarm Payrolls
Attention is now on the U.S. nonfarm payrolls report due later on Friday, which will provide further insights into the labor market and overall economic health. Market participants are cautious, with expectations that poor job numbers could exacerbate negative sentiment towards risky assets.
Oil Prices Edge Higher Amid Ongoing Declines
In commodity markets, oil prices saw a slight increase, though they are on track for a fourth consecutive weekly decline. Brent crude rose by 0.5% to $79.92 per barrel, while U.S. crude gained 0.54% to $76.72 per barrel. The rise in prices is tempered by ongoing concerns over global fuel demand growth, overshadowing fears of supply disruptions in the Middle East.
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