(Bloomberg) — Asian equities were flat and the dollar and yen rallied against peers in a sign of defensive posturing as traders prepare for US data later this week that will offer clues on Federal Reserve rate cuts.
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Stocks in Australia, Hong Kong and South Korea fell, while mainland China shares fluctuated. Shares in Japan trimmed earlier gains, but were among the best performers in the region, even as the yen strengthened. An index of global shares erased an earlier advance.
European equity futures were little changed, while US contracts fell ahead of Wall Street’s reopening later Tuesday, following the Labor Day public holiday. Treasuries were little changed.
As index of dollar strength reached a two-week high and was on pace for fifth daily advance. The yen’s climb ended a run of weakening against the greenback in the prior four trading days.
Pimco Japan Ltd. expects the Bank of Japan to raise rates again as early as January, but further hikes may not lead to a stronger yen, according to Julius Baer, which is preparing for further weakness in the currency.
“Our assumption is that the Bank of Japan policy rate will be half a percent by March next year and the fed funds rate will be 4.5% — that’s still 400 basis points of difference, which is very wide,”said Mark Matthews, head of Asia research on Bloomberg Television. “On that basis we do see the yen weakening.”
The South Korean won weakened after August inflation data showed year-over-year prices rose at the slowest pace since 2021. The Australian dollar fell as iron ore prices dropped.
Traders will be looking ahead to American manufacturing data due later Tuesday for clues about the health of the US economy in a busy week of economic reports that will reach a crescendo on Friday with the nonfarm payrolls data.
Markets are pricing a start to the US easing cycle this month, with a roughly one-in-four chance of a 50 basis-point cut, according to data compiled by Bloomberg.
“The markets may be leaning too dovish into the September Fed meeting,” Valentin Marinov, head of G-10…
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