Asia Day Ahead: Eyes on US job report ahead, gold prices on watch

Market Recap

Major US indices were flat to lower overnight (DJIA +0.03%; S&P 500 -0.34%; Nasdaq -0.56%), with the S&P 500 and Nasdaq extending their losing streak to the fourth straight day, while the DJIA held firm. Market participants were looking towards the Automatic Data Processing (ADP) employment report and jobless claims to set the stage for the upcoming US non-farm payroll data, and a better-than-expected showing on both fronts continue to point towards resilient labour conditions. Particularly, US private payrolls increased 164,000 in December, which is its highest pace since August 2023.

With that, US Treasury yields found their way higher, moderating from oversold technical conditions while tapping on resilient macro data for some pushback against extreme dovish rate expectations. The US two-year yields were up 5.6 basis point (bp) while the 10-year yields flirted with the 4% level for the third straight day, briefly pushing above it but did not manage to find a decisive close yet. The US dollar was flat (-0.02%) however, while gold prices held firm (+0.62%), seemingly on hold for the upcoming US job report to provide greater cues for direction.

Ahead, expectations are for US to add 170,000 jobs last month, softening from the 199,000 in November 2023. Unemployment rate is expected to tick higher to 3.8% from previous 3.7%, while wage pressures is expected to ease to 3.9% year-on-year from previous 4%. A significantly stronger-than-expected labour figures may renew calls for the high-for-longer rate narrative and potentially give the markets an excuse for further profit-taking.

The small-caps have been an outperformer in December last year, with the Russell 2000 index briefly breaking above its broad consolidation range and overcoming its key psychological 2,000 level, but are failing to sustain its breakout lately. The index has pared close to 40% of its December gains, with the daily moving average convergence/divergence (MACD) presenting a bearish crossover for now. Further downside may leave the 1,920 level on watch for some defending, while on the upside, the key 2,000 level remains a crucial resistance to reclaim for buyers.

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