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.

Asia Open

Asian stocks look set for a subdued open, with Nikkei +0.30%, ASX +0.11% and KOSPI -0.05% at the time of writing. In the lead-up to the upcoming US job numbers, sentiments are back on some wait-and-see, given that we may have to see a substantial weakening of the US labour market to justify market pricing of a rate cut as early as March this year.

The economic calendar this morning saw some firming in Japan’s service sector purchasing managers' index (PMI) for December, aiding to offset some weakness from its manufacturing activities earlier in the week. With the Bank of Japan (BoJ) next meeting in late-January, the central bank may continue to exercise patience for now, keeping policy settings on hold to buy time for more inflation and wage data, while assessing the impact of recent earthquake.

On the technical front, one to watch may be the ASX 200 index, which is finding some near-term resistance at its all-time high around the 7,650 level. Multiple attempts to overcome this level of resistance since August 2021 have failed to find a breakout, keeping the index on a broad ranging pattern. Any eventual success in overcoming this level could provide a bullish cue, potentially paving the way towards the 7,800 level next.

On the watchlist: Gold prices on watch ahead of US non-farm payrolls data

An earlier attempt to break above the US$2,074 level of resistance failed to sustain into the new year, as gold prices retraced as much as 2.8% over the past one week. Its daily MACD presented lower highs for now, which reflects ebbing upward momentum, as market participants continue to seek for validation for the aggressive dovish pricing priced for 2024.

That will leave eyes on the US non-farm payroll data ahead, where softer labour conditions will be very much preferred by gold bulls to allow US policymakers to recalibrate their rate-cut views to be more in line with market expectations. The upward trend for the yellow metal may remain intact for now, with the formation of higher highs and higher lows since October 2023. On the downside, the US$2,017 will be a crucial support to hold, where the Ichimoku cloud zone on the daily chart may see buyers step in for some defending. On the upside, the US$2,074 level will serve as immediate resistance to overcome.

Thursday: DJIA +0.03%; S&P 500 -0.34%; Nasdaq -0.56%, DAX +0.48%, FTSE +0.53%