Asia wrap: USD/JPY heads south as global growth fears gain steam

Markets returned from the US Labor Day holiday in a cautious mood, as risk assets took a hit. We saw a textbook case of risk-off dynamics in the FX space: safe-haven currencies like JPY, CHF, and USD gained strength, while high-beta currencies like AUD, NZD, and NOK stumbled.

With concerns around global growth and upcoming economic data looming large, the markets seem to be bracing for further turbulence.

Global growth fears are undoubtedly gaining steam, and we expect this could extend G10 FX and equity performance patterns —at least until the FOMC meeting on September 18th. The weak ISM Manufacturing report sent ripples through the US equity markets, with tech stocks leading downward charges.

 When risk reduction takes hold, the most crowded trades tend to bear the brunt, and that’s precisely what we saw in Nvidia, which tumbled 9.5% as global growth jitters intensified with some DoJ anti-trust concerns thrown in for good measure.

Every piece of economic data between now and September 18th will be scrutinized and traded as a clue for whether the FOMC will opt for a 25bps or a 50bps rate cut. Today's JOLTS report, while often overshadowed, could prove critical in shaping expectations for Friday's jobs data and beyond. With the bar set sky-high, even the slightest data miss will be magnified, turning lousy news into horrible news again.

Stock traders, however, are notoriously mercurial. While my view is that a 50bps cut would signal the Fed is in panic mode—something that should spook the markets—it's entirely possible that equity traders, riding high on nosebleed valuations, will interpret a deeper cut as supportive. In their world, more liquidity via lower rates is always a reason to rally, even if the underlying reason for the cut is far from rosy.