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Jul 8, 2016

Asian Markets at Close Report, by MarketWatch on July 8, 2016: Shanghai, Nikkei End Lower as Investors Eye U.S. Jobs Report

Dominique Fong

Asia’s stock markets were broadly lower on Friday, dragged down by unease over lower oil prices and an imminent U.S. jobs report.

Japan’s Nikkei Stock Average NIK, -1.11%  fell 1.1% and Korea’s Kospi SEU, -0.56%  was down 0.6%, while Hong Kong’s Hang Seng Index HSI, -0.69%  was last down 0.9%. China’s Shanghai Composite Index SHCOMP, -0.95%  ended down 1%, and Australia’s S&P/ASX 200 XJO, +0.05%  was roughly flat.
The focus of traders’ anxiety shifted from Brexit to the possibility of dire U.S. job news from the June nonfarm payroll report, due later Friday. The May report shocked markets a month ago with numbers showing the poorest jobs gain in more than five years, and a repeat of that kind of weakness could reinforce fears the U.S. economy is faltering.
Read: What you need to know about the June jobs report
Nerves were on edge despite unofficial data Wednesday from payroll processor ADP showing that U.S. payrolls in June rose at the fastest pace in three months.
“It’s still the most important data point that we get every month,” Siddharth Mathur, a Citigroup strategist based in Singapore, said of the nonfarm payroll report. “The one thing people always fear,” he said, is numbers that completely miss estimates on the downside.
U.S. jobs data present a decidedly mixed bag to Asian investors. A stronger reading would restore confidence in the health of the American economy. It would also take some pressure off the yen appreciation, which would be good for Japanese exporters.
But a strong reading would also lift expectations for a U.S. interest-rate increase, boosting the U.S. dollar and increasing the likelihood of capital flight from Asia to higher-yielding assets in the U.S.
“The main thing really is, if you get a jobs report that’s OK or not spectacular, that strengthens the Fed’s case for staying on hold now,” and that could help emerging market stocks to continue to outperform, said Sunil Garg, head of international equity research at J.P. Morgan.
Oil moves
A decline in the price of Brent crude oil LCOU6, +0.50%  hit energy shares in China, Hong Kong and Japan. Concerns of a gasoline oversupply sent Brent prices plunging overnight, though they rose slightly in early Asian trade to $46.97 a barrel. Among the energy heavyweights, China’s Sinopec 600688, -2.24% was down 2% and Japan’s Idemitsu Kosan 5019, -2.20%  fell 2.2%.
“Markets have just reacted to the overnight move which in turn was led by the drop in oil prices,” Citigroup’s Mathur said. “Typically people consolidate their portfolios and wait for the [jobs] data.”
Torrential rains in China disrupt nearly 33 million people
A series of strong rains battered China's 26 provinces during the first week of July, leaving more than 1,000 cities and counties flooded and at least 186 people dead.
Chinese stocks fell amid worries of rising risks in the country’s banking sector. Nonperforming loans surpassed $299.2 billion at the end of May, which increased banks’ bad-loan ratio to 2.15%, said Yu Xuejun, a senior Chinese banking regulator.
The loans data swamped the good news that came Thursday about China’s foreign-exchange reserves. They rose $14 billion in June, to $3.205 trillion, according to the People’s Bank of China — a surprise increase that suggests currency pressure is easing.
In other markets, the yield on the newest 10-year Japanese government bond TMBMKJP-10Y, -4.71%  fell to a record low of minus 0.290%. The yen USDJPY, -0.20%  , a recent source of comfort for rattled investors, was recently stable at 100.546 against the U.S. dollar.