Asian financial markets began the week with careful positioning as investors prepared for crucial corporate earnings and delayed US economic data that could shape the interest rate landscape. The cautious mood reflected growing uncertainty about the timing of potential Federal Reserve rate cuts and concerns about the sustainability of the artificial intelligence stock rally.
Market Performance Across Asia
Japanese stocks showed minimal movement with the Nikkei index trading flat, but specific sectors faced significant pressure. Tourism and retail stocks suffered heavy losses after China issued travel warnings against Japan amid escalating diplomatic tensions. Department store operator Isetan Mitsukoshi and cosmetics giant Shiseido both plummeted approximately 10% following the development.
Australia's market touched a four-month low, partly driven by mining heavyweight BHP dropping 0.7%. The decline came after Britain's high court found the company liable for a dam collapse incident in Brazil. Meanwhile, US stock futures indicated a modest recovery with S&P 500 futures gaining 0.3% in early trading.
The bond market saw US Treasury yields maintaining their elevated levels, with the ten-year yield holding at 4.156% during Tokyo trading hours. This followed a mixed closing on Wall Street where the S&P 500 recorded a slight decline while the Nasdaq managed modest gains.
Economic Data and Policy Outlook
This week's economic calendar centers on Thursday's delayed September US jobs report, though many analysts question its relevance given more recent private surveys already indicating labor market softening. The data release coincides with 19 scheduled appearances by Federal Reserve officials, whose interpretations will be closely watched for policy signals.
Recent comments from Fed policymakers have dampened expectations for imminent rate cuts. Kansas City Fed President Jeffrey Schmid and Dallas Fed President Lorie Logan both expressed hawkish views, questioning the necessity of reducing rates in the coming month. Market probabilities for a December rate cut have consequently dropped from over 60% to around 40% within just one week.
Bob Savage, BNY's head of markets macro strategy, highlighted concerns about stagflation risks emerging. "There are expectations that weaker jobs data and higher inflation will mean balanced risks. Neither is good for risk, as stagflation returns to the lexicon," he noted.
Regional Economic Developments
Japan reported disappointing economic news with data showing the economy contracted for the first time in six quarters, partly attributed to US tariff impacts. In response, new Prime Minister Sanae Takaichi is reportedly considering a substantial stimulus package worth approximately 17 trillion yen ($110 billion), according to Nikkei newspaper reports.
The stimulus plans maintained pressure on the Japanese yen, which traded at 154.54 against the US dollar, keeping markets alert for potential currency intervention. Japan's bond market continued its slide, pushing 10-year yields to their highest levels since 2008.
Some analysts expressed concerns about potential capital flight if investor confidence in fiscal discipline weakens, drawing parallels to recent market turbulence in Britain when reports suggested Finance Minister Rachel Reeves was retreating from tax increase plans.
Nvidia Earnings in Focus
The corporate earnings spotlight falls squarely on Nvidia this week, with the chipmaker's results serving as a critical test for the AI-driven market rally. Market strategists view the response to Nvidia's earnings as indicative of the rally's sustainability.
"If you don't see the growth that I think the market is expecting around Nvidia or the positive commentary that we are likely to get from Nvidia going forward, I think you're going to see more of a dent to those sorts of trades," observed one analyst.
Nvidia's stock has experienced an extraordinary surge, climbing approximately 1,000% since ChatGPT's launch in November 2022. The company's year-to-date gain exceeds 40%, propelling it to become the first corporation to achieve a $5 trillion market valuation last month.
In other market movements, the US dollar strengthened slightly against major currencies, gold prices stabilized at $4,084 per ounce after Friday's losses, and Brent crude futures declined 1% to $63.78 during Asian trading. Bitcoin registered its largest weekly decline since March, dropping over 10% last week to trade around $94,717.
