- Asian Stock Markets React to South Korean Political Unrest
Asian markets struggled on Friday as investors reacted to political instability in South Korea and anticipated critical U.S. job data. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped by 0.3%, driven by a sharp 1.7% fall in South Korea’s KOSPI index. This downturn coincided with the Korean won losing 0.8% to trade at 1,425.42 per dollar, inching closer to the recent low of 1,443.4 reached earlier in the week.
The drop in South Korean markets follows President Yoon Suk Yeol’s controversial declaration of martial law. Opposition lawmakers, led by the Democratic Party, have voiced concerns about further authoritarian measures, prompting a heightened state of political tension. Reports from the Yonhap news agency indicate widespread apprehension about another possible martial law declaration, exacerbating market uncertainty.
Contrasting South Korea’s turmoil, China’s blue-chip index rose modestly by 0.2%, while Hong Kong’s Hang Seng index climbed 0.4%. These gains suggest some resilience in the region despite broader concerns.
Meanwhile, Japan’s Nikkei dropped by 0.6% on the day, although it posted a weekly gain of 2.5%. The market’s optimism stems from October wage growth data, which showed the fastest increase in 32 years. Despite this, the Bank of Japan is unlikely to alter its monetary policy this month, with markets not expecting a rate hike.
The spotlight now shifts to the U.S. nonfarm payrolls report, which could shape Federal Reserve policy decisions. Analysts expect an increase of 200,000 jobs for November, rebounding from the mere 12,000 added in October—a figure impacted by hurricanes and strikes. However, projections also indicate a slight rise in unemployment, moving to 4.2% from 4.1%.
A stronger-than-expected jobs report could undermine the Federal Reserve’s anticipated rate cut on December 18, which is currently priced at a 70% probability by futures markets. Conversely, weaker job growth could amplify concerns about a slowing economy.
“An outcome below 100,000 jobs with an unemployment rate at 4.2% or higher could pressure equities, despite increasing the likelihood of a 25-basis-point rate cut. On the other hand, a stronger-than-expected print exceeding 250,000 jobs with unemployment at or below 4.1% could lead to market derisking, as it raises the possibility of the Fed holding off on easing policy.”
U.S. equity markets retreated from record highs on Thursday as investors repositioned themselves ahead of the jobs report. The tech-heavy Nasdaq remains a standout performer, having added 2.5% this week, which equates to an impressive $1 trillion gain in market capitalization.
The U.S. dollar softened on Friday, falling 0.6% overnight and stabilizing near a three-week low at 105.84. The euro capitalized on the dollar’s weakness, rallying 0.7% to trade at $1.0580. Market participants remain cautious about a sharp dollar pullback given the overwhelmingly long positions held by traders.
In the cryptocurrency space, Bitcoin briefly surpassed the $100,000 mark for the first time amid optimism about a favorable regulatory shift in the U.S. However, the digital currency faced profit-taking and fell as low as $92,092 before stabilizing at $98,265, representing a 1% gain for the day.
“This recent volatility has the hallmarks of a classic blow-off top. While this isn’t the end of Bitcoin’s bull run, it does suggest we are entering a consolidation phase in the days and weeks ahead.”
Adding to market intrigue, former President Donald Trump announced the appointment of David Sacks, the former COO of PayPal, as his administration’s AI and Crypto Czar. This development underscores the increasing influence of cryptocurrencies and artificial intelligence in shaping economic policy.
Treasury yields remained steady on Friday, with the two-year yield holding at 4.15% and the 10-year benchmark yield unchanged at 4.178%. These figures reflect little change over the week, indicating a wait-and-see approach among bond investors ahead of the payroll data.
Oil prices extended their declines despite OPEC+’s decision to delay a planned output increase until April. U.S. West Texas Intermediate (WTI) crude slipped 0.2% to $68.18 per barrel, following a 0.4% drop overnight.
Gold, another traditional safe haven, traded in a narrow range, losing 0.4% to $2,621.89 per ounce. The precious metal is down 1.2% for the week, reflecting muted demand amid broader economic uncertainty.
Markets are poised for significant moves following the U.S. nonfarm payrolls report, as its implications extend far beyond employment numbers. A stronger labor market could derail expectations of imminent Federal Reserve rate cuts, potentially disrupting the Goldilocks scenario investors are betting on.
