Asian Stocks Under Pressure: US Jobs Report Sparks Caution

Asian stock markets fell on Friday, January 13, 2025, as investors remained cautious ahead of the crucial U.S. jobs report that could impact the outlook for further interest rate cuts and the dollar. The MSCI gauge for emerging market stocks fell 0.5%, touching its lowest since September. The index has dropped more than 25% from its all-time high in 2021.



Stocks in Singapore fell 1.9%, pulling back further from a more than 17-year high scaled on Wednesday. The benchmark was on track for its worst day since early August 2024. The Singapore dollar slipped 0.2%, while the Thai baht declined 0.3%. The U.S. nonfarm payrolls report, due later in the day, is expected to show that 160,000 jobs were added in December with unemployment holding at 4.2%.

A much stronger increase in jobs would bolster the case for fewer rate cuts by the Federal Reserve and likely strengthen the greenback, in light of recent data pointing to a resilient U.S. economy. The prospect of fewer rate cuts and uncertainty regarding President-elect Donald Trump's proposed tariff and immigration policies have led to a surge in global bond yields, supporting the dollar and keeping emerging market currencies under pressure this week.

"Asian markets have shown resilience due to attractive real rates, domestic support, and lack of fiscal concerns. However, we remain cautious on EMFX in the medium-term, given the potential impact of U.S. policy on capital flows and the declining real yield cushion," Citi analysts said in a note. "We believe the USD rally and reduced EM carry make EMFX vulnerable in the near term."

In Asia, the Bank of Korea (BoK) and Bank Indonesia (BI) will deliver their monetary policy decisions next week. Both central banks have already started their rate-easing cycle, but analysts believe they will likely hold rates this time. "Outsized FX moves in December will ultimately constrain the BoK from lowering its policy rate in January," Barclays analysts said in a note. The South Korean won declined 0.3%, while stocks closed 0.2% lower. The benchmark equity index rose 3% in its best week since mid-November, helped by hopes surrounding artificial intelligence technologies.

Equities in Indonesia climbed 0.6%, while the rupiah edged lower. "While BI would likely prefer to resume its rate-cutting cycle, we believe pressures on the IDR (rupiah) override the central bank's pro-growth instincts," Barclays analysts said. Markets are awaiting inflation data from India and retail sales and GDP data from China next week.

In conclusion, the strong U.S. jobs report has sparked caution among Asian investors, leading to a sell-off in regional stock markets. The prospect of fewer rate cuts by the Federal Reserve and uncertainty surrounding President-elect Donald Trump's policies have contributed to the decline in Asian currencies and the rise in global bond yields. Asian central banks may face constraints on rate cuts and pressures on their currencies, as the Fed's potential shift in monetary policy could impact capital flows and the real yield cushion. Investors should remain vigilant and monitor the situation closely as the U.S. jobs report and other economic indicators may continue to influence Asian markets in the short and long term.