Markets Rebound Amid U.S. Economic Uncertainty

Asian share markets attempt recovery post steep sell-off, supported by tech-heavy Taiwan and South Korea stocks. Investors scrutinize U.S. economic data to predict Federal Reserve's rate cuts. Oil prices stabilize, gold inches higher. Dollar weakens, yen and Swiss franc gain. Treasury yields remain calm.

Asian share markets attempted to regain their footing on Thursday following a steep sell-off. A rally in Treasuries weakened the dollar and bolstered the yen, as concerns over the U.S. economy increased the likelihood of significant Federal Reserve rate cuts.

Oil prices remained steady in early trading after previous session drops due to weak demand and supply issues, while gold prices edged higher. In a data-heavy week, investors scrutinize reports to gauge the health of the U.S. economy and labor market; weak manufacturing data on Tuesday and mixed labor data on Wednesday kept markets on edge.

Japan's Nikkei dropped 0.5% to its lowest in three weeks, whereas tech-driven Taiwan and South Korean stocks both rose by 1%, rebounding from Wednesday's slide. This boosted MSCI's broadest index of Asia-Pacific shares outside Japan by 0.6% after a nearly 3% drop over three days.

Attention on Thursday is on U.S. services industry data and jobless claims, while the focus of the week is Friday's August nonfarm payrolls report. The report is expected to reveal the clearest indications of economic direction and may determine if the Federal Reserve will cut interest rates this month by a quarter or half a percentage point.

Markets are pricing in a 44% chance of a 50 basis point cut at the Fed's September 17-18 meeting, up from 38% a day earlier, CME FedWatch tool indicated. Traders now anticipate 110 basis points of easing from the three remaining Fed meetings this year. Wednesday's data showed U.S. job openings fell to a 3-1/2-year low in July, suggesting weakness in the labor market.

Ryan Brandham of Validus Risk Management noted the data supports the Fed's focus on employment but believes the risk skews towards fewer cuts than market predictions. San Francisco Fed President Mary Daly emphasized cutting rates to maintain labor market health, relying on incoming economic data for specificity. Vasu Menon of OCBC highlighted that the odds of an economic contraction are less than last year as the Fed is prepared to respond with deeper cuts if necessary.

In currency markets, the dollar remained on the defensive, with the Japanese yen and Swiss franc benefiting as investors seek safe-haven currencies. Treasury yields calmed in early Asian trading Thursday after plunging in the prior session.

Two-year note yields were last seen at 3.775% after hitting 3.772% on Wednesday, the lowest since May 2023. Benchmark 10-year note yields were at 3.767%. In commodities, Brent crude futures rose 0.45% to $73.03 following a 1.42% drop in the previous session. U.S. West Texas Intermediate crude futures increased 0.52% to $69.56 after a 1.62% fall on Wednesday.

(Editing by Shri Navaratnam)

(With inputs from agencies.)