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Bond yields fall before US payrolls, as Asian stocks follow Wall Street's upward trend

The Asian stock market followed Wall Street to a new record high on Friday, and Treasury yields fell to their lowest level in four months as traders bet that the Federal Reserve will cut rates later this month despite the fact that the U.S. employment data is due to be released at the end of the day.

Gold held steady following Thursday's decline from its all-time high. The U.S. Dollar eased as traders adjusted their positions in anticipation of the Labor Report. Investors waited for an OPEC+ summit this weekend to discuss further production increases. Crude oil fell for a third consecutive day.

According to LSEG, the markets are almost certain that the Fed will cut rates by a quarter point at the end of its two-day meeting on September 17. They also price in a total 60 basis points reductions for this year. Data released on Thursday showed that Americans filed more new unemployment benefit applications than expected in the past week. Meanwhile, hiring by private companies slowed down in August. This is further evidence of a softening labor market.

The non-farm payrolls data due out on Friday is expected to show that the economy created 75,000 new jobs in August. This figure, which was not much higher than the 73,000 for July, initially sparked expectations of a Fed rate cut within the next few months. Fed Chair Jerome Powell then confirmed that speculation by delivering an unexpectedly dovish address at the closely watched Fed Symposium in Jackson Hole Wyoming last month.

Ken Crompton is the head of rates at National Australia Bank. He said that unless there's a really stellar payrolls report, it's difficult to see anything that will change the market's mind about a September rate cut.

The terminal rate, and how to get there, is still a question.

The S&P 500 finished at a record-high on Thursday, thanks to expectations of a more accommodative monetary environment. The Nasdaq rose 1%, just missing its all-time high closing price from August 13th.

S&P futures were 0.2% higher Friday and Nasdaq Futures gained 0.4%.

The Nikkei 225 index in Japan rose by 0.9%, while the Taiwanese stock market benchmark rose by 1.1%. Both markets are near recent record highs.

Hong Kong's Hang Seng index rose 0.8% while mainland Chinese blue-chip indexes advanced 1%.

Australian stocks rose by 0.5%.

Kyle Rodda is a senior financial analyst at Capital.com. He said that the non-farm payroll data released tonight was a "sink or swim" moment for markets.

He said that the question was "whether the Fed is in a position to lower interest rates and cushion the economy or if they are behind the curve." If the data indicate that an economy is accelerating, it could cause volatility and risk aversion.

This week, long-term sovereign bonds have seen a lot of volatility, as fiscal deficits worsened from Washington to Brussels, London to Tokyo. Political instability has also played a role. The bond yields rose sharply in mid-week, but a growing belief that the Fed would soon cut rates tempered this. The 30-year Treasuries yield fell to a 3-week low on Friday, Tokyo. Meanwhile, the 10-year and 2-year yields dropped to 4-month lows, 4.153%, and 3.582% respectively.

The yields on Japanese 30-year government bonds fell to 3.230% for the second consecutive day, after reaching a record high of 3.255% on Wednesday.

The U.S. Dollar Index, which measures currency against six major counterparts, fell 0.1% to 98.128 and regained the ground that it lost on Thursday.

The week-over-week gain is around 0.3%. This is due to the big gains made on Tuesday when sterling and the yen fell amid an increase in fiscal concerns. Gold rose 0.4%, to $3,558 an ounce. This retraced Thursday's decline of 0.4%, as the market stabilized after a seven-day, 6.3% rally that culminated in a record high of $3,578.50.

Brent crude futures dropped 0.2% to $66.68 a barrel while U.S. West Texas Intermediate crude fell 0.3% to $63.32.

Two sources with knowledge of the discussions said that eight members of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, will discuss the possibility of raising production at a Sunday meeting in October.

(source: Reuters)