The current market is highly unstable. In yesterday’s New York session, the US stock market, led by tech stocks, saw a broad decline following the release of US economic statistics that fell short of expectations. Semiconductor giant Intel dropped 20% in after-hours trading, and the Tokyo market saw significant declines with the Nikkei 225 down 5.8% and the TOPIX down 6.1%.
In this context, the USD/JPY exchange rate has been heavy on the upside. However, today’s range has been limited to about 1 yen, from around 148.80 to 149.80, showing some stability compared to the volatility in the stock market. The sharp decline in stock prices has slightly dampened expectations for an additional rate hike by the Bank of Japan in October. The market is expected to follow the stock market closely today.
The highlight of the overseas market today is the release of the US employment report for July. The most watched figure is the non-farm payrolls, expected to increase by 175,000, down from the previous increase of 206,000. Given that the results often diverge from market expectations, the impact of this indicator will depend on its outcome. The unemployment rate is expected to remain at 4.1%, with average hourly earnings projected to rise by 0.3% month-over-month and 3.7% year-over-year, down from the previous 3.9%.
Market reactions should be carefully monitored. Typically, the US Treasury yields respond to the strength or weakness of the results, leading to dollar-led market movements. However, with the current market leaning towards risk aversion, there is a potential for market sentiment to turn panicky. The weak ISM Manufacturing Index from yesterday hinted at a possible economic slowdown, which could be reignited if the employment report shows surprising weakness. This could trigger risk-averse reactions, such as yen and dollar buying. Conversely, strong results could confirm the robustness of the US economy, spreading a sense of relief.
Following the employment report, other US economic indicators such as June’s manufacturing new orders and durable goods orders (final values) will be released. Speaking events include appearances by Chicago Fed President Goolsbee and Richmond Fed President Barkin on television programs. Chevron and ExxonMobil are the key US corporate earnings to watch today.
With the US employment report and unemployment rate scheduled for release, close attention should be paid to subsequent USD movements.
