Asian investors shrug off weaker US jobs data

Monday, February 10, 2014

Asian markets largely dismissed the disappointing non-farm payroll number released on Friday, following Wall Street higher on positive investor sentiment. The Nikkei and TOPIX added 1.77% and 1.27% respectively despite a deepening current account deficit, rising for the third consecutive month to 685.4bn yen in December from 592.8bn yen the prior month as a weaker yen drove up the cost of imports. Chinese stocks were also off to a strong start to the week, with the CSI 300 adding 2.49% while the Shanghai Composite rallying 2.03%.

Despite the stronger equity market performance towards the end of last week and in Asia overnight, spot gold prices managed to breach resistance in the form of the 100 day MA as prices pushed past $1,270. Liquidity concerns in China remain a worry for investors as Beijing struggles to crackdown on the shadow banking sector and with a weaker than anticipated US jobs report buying in the yellow metal remains firm. Prices are up 6.4% year-to-date, gaining support from the patchy recovery in the US and return of Chinese buyers after last week’s Lunar New Year holidays.

Front month Arabica coffee futures traded within a wide range on Friday, closing slightly higher as speculators increased bullish bets as drought conditions in Brazil continued to threaten this year’s harvest. Prices have rallied almost 20% since the start of the month rising to their highest level in eight months as hedge funds take long positions on tightening fundamentals. Front month raw sugar prices have also experienced significant upside since the start of the month on the drier outlook, rising as much as 9% towards 16.50, however, prices pulled back towards the end of last week as the highly anticipated Kingsman 2014-15 outlook estimated that the global sugar surplus would most probably build for a fifth year.

A quiet start to the week will leave investors mulling over US jobs data and unemployment as well as key rate decisions by both the BoE and ECB received towards the end of last week. Investors will be eagerly awaiting an update of forward guidance from the Bank of England on Wednesday which may hint at how quickly the central bank will raise interest rates. Investors will also be paying close attention to Janet Yellen’s first monetary policy report to Congress as chair of the Federal Reserve which could provide further insight into the Fed’s policy outlook as unemployment continues to decline at an accelerated pace. Friday’s data release saw the unemployment rate in the US drop to 6.6% in January from 6.7% the month before and a continuation at this pace could force the Fed to reassess forward guidance on interest rates.