Asian shares were mostly lower Monday as traders assessed a mixed US jobs report for clues on the Federal Reserve’s next decision. The intensifying Ukraine-Russia conflict also weighed on sentiment.
Equity gauges declined in mainland China, South Korea and Australia. Chinese pharmaceutical stocks were among the worst performers in the nation on reports of a widening anti-bribery campaign in the health sector. Japanese stocks advanced as upbeat earnings and stabling domestic bond yields offset headwinds from a fall in Wall Street shares.
US equity futures advanced in Asia after the S&P 500 ended 0.5% lower Friday as Apple Inc. dropped almost 5% after its outlook sparked worries over tepid demand. By contrast, Amazon.com Inc. climbed over 8% on a bullish revenue forecast.
Oil was steady after Ukraine attacked another Russian vessel over the weekend, a signal of a rapidly expanding war that puts at risk significant flows of Russia’s commodities from the Black Sea. Wheat also extended its advance.
Treasury yields advanced during Asian trading hours, reversing some of Friday’s declines when the interest-rate sensitive two-year yields and 10 year yields fell more than 10 basis points after US payrolls came in below estimates. But, the data also showed wages topping forecasts and lower unemployment.
Friday’s decline wrapped up a week when long duration Treasuries were sold off on concern of expanded US debt issuances. The 10-year yield still ended the week eight basis points higher.
For investors, their near-term focus will most likely be around the US bond yields, especially as US CPI data approaches.
“A scenario of a continued rise in US 10-year bond yields may present a near-term headwind for Asian stocks,” strategists at Nomura Holdings Inc., including Chetan Seth, wrote in a note. “We remain of the view that US disinflation/resilience are still the dominant themes.”
The greenback weakened against some of its Group-of-10 counterparts after the US currency slid Friday amid a debate among Fed officials on whether additional interest-rate hikes are needed.
Swap traders projected about a 40% chance of another quarter-point rate increase by the Fed by the end of this year. By the end of 2024, they projected rate cuts totaling more than 125 basis points.
Fed officials Raphael Bostic and Austan Goolsbee suggested that slower US employment gains mean the central bank may soon need to pivot to thinking about how long to hold rates at elevated levels. Their colleague Michelle Bowman said the Fed may need to raise rates further in order to fully restore price stability.
However, Fed doves may be too confident about the strength of the US economy and an easing in price pressures, according to Win Thin, head of currency strategy at Brown Brothers Harriman & Co. “The easy part is getting from 8% to 4%; the hard part is getting it from 4% to 2%,” he said about US inflation in a note. “Because of this, we believe the markets continue to underestimate the Fed’s capacity to tighten.”
The yen fell and was set to end a three-day winning streak. A summary of opinions from the Bank of Japan’s July meeting showed that one member said the central bank should allow greater flexibility in yield curve control. Yields on Japanese 10-year bonds fell two basis points.
Key events this week:
- Atlanta Fed President Raphael Bostic and Fed Governor Michelle Bowman at Fed Listens event, Monday
- Japan household spending, Tuesday
- US wholesale inventories, trade, Tuesday
- Philadelphia Fed President Patrick Harker speaks, Tuesday
- China CPI, PPI, Wednesday
- India rate decision, Thursday
- US initial jobless claims, CPI, Thursday
- Atlanta Fed President Raphael Bostic pre-recorded remarks for employment webinar, Thursday
- UK industrial production, GDP, Friday
- US University of Michigan consumer sentiment, PPI, Friday
Some of the main moves in markets:
- S&P 500 futures rose 0.3% as of 2:13 p.m. Tokyo time. The S&P 500 fell 0.5% Friday
- Nasdaq 100 futures rose 0.5%. The Nasdaq 100 fell 0.5%
- Japan’s Topix rose 0.2%
- Australia’s S&P/ASX 200 fell 0.3%
- Hong Kong’s Hang Seng fell 0.4%
- The Shanghai Composite fell 0.8%
- Euro Stoxx 50 futures fell 0.3%
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.0994
- The Japanese yen fell 0.3% to 142.13 per dollar
- The offshore yuan fell 0.2% to 7.2047 per dollar
- The Australian dollar was little changed at $0.6568
- Bitcoin was little changed at $29,112.42
- Ether rose 0.4% to $1,837.67
- The yield on 10-year Treasuries advanced two basis points to 4.06%
- Japan’s 10-year yield declined two basis points to 0.620%
- West Texas Intermediate crude fell 0.1% to $82.73 a barrel
- Spot gold fell 0.3% to $1 937.61 an ounce
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