Asian markets showed mixed performance on Friday as investors digested the impact of the lukewarm US jobs report on Federal Reserve policy expectations. MSCI's broadest index of Asia-Pacific shares outside Japan fluctuated between gains and losses, edging up 0.1% after two consecutive days of declines. The Nikkei declined 1% as the dollar gained on the yen, while South Korea's Kospi weighed on the regional benchmark in sympathy with sharp falls in chipmakers in US trading. S&P 500 e-mini futures and Nasdaq e-mini futures were both up 0.1%, with Japan's Nikkei 225 down 1%. The mixed Asian response reflects the uncertainty surrounding Federal Reserve policy direction following the softer US employment data. Following the report, US stocks briefly gained before surrendering their advances, while the US dollar weakened as traders reduced expectations of a September rate increase.
The softer June jobs data provided significant relief to investors who had been concerned about aggressive Federal Reserve rate hikes, though the underlying employment picture revealed concerning trends. As reported by CNBC TV18, the employment report for June showed the U.S. economy added just 57,000 jobs last month, well below economists' estimates for a rise of 115,000, while the unemployment rate improved to 4.2% from 4.3% earlier. However, the unemployment rate fell primarily due to a big drop in the participation rate to 61.5% from 61.8% – highlighting worker disengagement rather than genuine improvement. Westpac analysts noted that the figures challenged the narrative that the Fed remains on track to hike in the second half of this year, as reported by CNBC TV18. June's job growth numbers snapped a three-month streak of job growth over 100,000 and eased significantly from a revised 129,000 jobs added in May. The details show the number of people employed fell by half a million, while the number of people unemployed fell 213k, meaning more than 700,000 left the workforce. Wage growth was in line at 0.3% month-on-month or 3.5% year-on-year. The softer US private-sector hiring raised questions about labour market momentum, with markets continuing to price in more than a 60% probability of a September Fed rate hike. According to Reuters, U.S. job growth slowed more than expected in June, while payroll figures for the previous two months were revised lower, with data released by the U.S. Labor Department pointing to a cooling, yet still stable, labour market.
The employment data's impact on Federal Reserve policy expectations was significant for market participants, particularly as the Fed has shifted its communication approach. According to CNBC TV18, the softer jobs report sparked relief on Wall Street that the Fed would at least stay put on rates for now if not cut them. Fed Chair Kevin Warsh also said inflation expectations have eased over the past month, which further boosted the dovish bets, as reported by Upstox. The new-look Fed has been talking tough on inflation, and a stronger labor market would have only raised the temperature. However, this report doesn't scream labor-market trouble, but it does cool the narrative a bit, according to eToro U.S. investment analyst Bret Kenwell. The report may push policymakers to pay closer attention to the employment side of their mandate, as a stronger labor market would have only raised inflation concerns after an oil shock stemming from the U.S.-Iran war. Before the jobs report, financial markets were pricing in a 50.7% chance that the US Federal Reserve would raise interest rates at its September 15-16 policy meeting, according to CME Group's FedWatch tool, with the Fed keeping its benchmark interest rate in the 3.50%-3.75% range at its last meeting. Expectations for monetary policy shifted soon after the report, with CME Group data showing traders now assign an 82% probability that the Federal Reserve will stay put on rates on July 29, up from 71% on July 1, as reported by CNBC TV18. For the September meeting, hike expectations dimmed to 55% from 64.1% according to The Economic Times. Fed funds futures are pricing an implied 46.8% probability that the US central bank will keep rates steady at its meeting on September 15 to 16, compared to a 35.8% chance a day earlier, according to the CME Group's FedWatch tool, with the tepid jobs data dousing traders' expectations of an imminent rate hike and raising the odds that the Fed will keep rates on hold until October. Market participants now see roughly even odds of a rate hike at the Fed's September meeting, according to LSEG data, as reported by Reuters.
The bond market reflected the same sentiment as equity markets, with the yield on the benchmark 10-year US Treasury falling to 4.47% after touching 4.50% earlier in the day. Before the war, the yield had stood at 3.97%. The two-year Treasury yield, which is more closely tied to expectations for Federal Reserve policy, declined even more sharply. Lower borrowing costs are generally seen as supportive for financial markets because they make it cheaper for businesses and households to borrow and spend. They also tend to support valuations across equities and other investments. Overnight, stocks on Wall Street were a mixed bag as the S&P 500 was flat and the Nasdaq Composite slipped 0.8%, while the Dow Jones Industrial Average rose to a record close. The US market will be closed on Friday in observance of the Independence Day holiday. Market participants responded positively across sectors, with nearly three out of every four companies in the S&P 500 trading higher. Chipmakers, which have recently come under pressure amid concerns that the artificial intelligence-driven rally had pushed valuations too high, showed mixed performance. As reported by CNBC TV18, many of the high-flying chip manufacturers like Intel, AMD and Micron, which fell between 7% to 11% on Wednesday, added another 4% to 6% to their losses on Thursday, as profit booking and rotation out of these stocks continued. Intel, AMD and Micron shares gained anywhere between 160% to 250% during the April to June period, making the recent decline particularly significant. National Beverage was among the day's biggest gainers, with its shares jumping 10% after announcing a special dividend of $3.25 per share for investors. The company produces LaCroix sparkling water. Cryptocurrency-linked stocks also rallied as bitcoin rose 4% towards $62,000 after dropping close to its lowest level since 2024 in the previous session. Robinhood Markets advanced 10.4%, Coinbase Global added 8.5%, and Strategy surged 11.4%. Ten of 11 major S&P 500 sectors were in positive territory, led by materials and consumer staples, with advancing issues outnumbering decliners by a 3.85-to-1 ratio on the NYSE and by a 2.48-to-1 ratio on the Nasdaq. However, tech weakness continued with overall tech down 2.1% today, down 5.1% for the trailing month but still up 28.9% YTD, as concerns persist about high memory prices and AI software token pricing affecting demand for data center solutions. Tesla shares fell sharply despite posting second-quarter deliveries above estimates, as reported by The Economic Times. The softer employment data has given markets some breathing room at a time when concerns over stretched valuations, sharp swings in the share prices of trillion-dollar companies and fears of an artificial intelligence-driven market bubble have been weighing on sentiment.
