Asian shares slip on South Korea risk, dollar holds firm

December 06, 2024 (MLN): Asian stocks slipped on Friday on political ructions in South Korea, while dollar bulls waited anxiously to see if U.S. payrolls challenged or cemented expectations of a rate cut this month.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3% in part due to a 1.7% drop in South Korea's KOSPI.

The Korean won fell 0.8% to 1,425.42 per dollar, tumbling towards the low of 1,443.4 hit on Tuesday after President Yoon Suk Yeol declared martial law in the country.

South Korea's main opposition Democratic Party said on Friday lawmakers were on standby after receiving many reports of another martial law declaration, the Yonhap news agency reported on Friday.

In other places, China's blue chips rose 0.2% and Hong Kong's Hang Seng gained 0.4%, while Japan's Nikkei fell 0.6% but is up 2.5% for the week.

Data showed that Japan's local wages grew at the fastest pace in 32 years in October, although markets are still leaning towards no rate hike from the Bank of Japan this month.

All eyes are on the U.S. nonfarm payrolls report due in the day.

Forecasts are centered on a rise of 200,000 jobs in November, rebounding from a soft 12,000 gain in October when the result was impacted by hurricanes and strikes.

The unemployment rate likely edged up to 4.2%, from 4.1%.

With markets priced for a Goldilocks outcome, risks abound as a really strong report could threaten the prospects of rate cuts while surprisingly soft numbers would amplify concerns about the economy.

Futures imply a 70% chance of a rate cut from the Federal Reserve on Dec. 18, suggesting the market is vulnerable to a hot jobs report, particularly as in the past week or so futures have climbed to price in an extra quarter-point cut for 2025.

"An outcome that comes in below 100k with a U/E rate at 4.2%, and certainly at 4.3%, could see equity under pressure even if this all but assures a 25bp rate cut," said Chris Weston, head of research at Pepperstone.

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