Asian stocks follow Wall Street lower

by Jonathan Adams
Wall Street

Nikkei dropped 0.8%, while MSCI’s broadest index of Asia-Pacific shares outside Japan was off 0.3%, Chinese blue chips slipped nearly 0.1%

Asian stocks followed Wall Street lower on Friday as signs of a strengthening U.S. recovery boosted bets for higher inflation and an earlier tapering of Federal Reserve stimulus.

U.S. Treasury yields climbed, lifting the dollar and hurting tech shares, after better-than-expected employment data overnight raised expectations for a strong reading for nonfarm payrolls on Friday, while a measure of service sector activity jumped to a record high.

Japan’s Nikkei dropped 0.8% early in the Asian session, while MSCI’s broadest index of Asia-Pacific shares outside Japan was off 0.3%.

Chinese blue chips slipped nearly 0.1% at the open.

On Wall Street, the S&P 500 shed 0.4%, while the Nasdaq Composite dropped 1%. The Dow Jones Industrial Average declined 0.1%.

U.S. stocks got some relief into the close on reports that President Joe Biden is willing to compromise over a proposed corporate tax hike.

The 10-year Treasury yield advanced 1.6320% in Asia, after advancing nearly four full basis points overnight.

The dollar index held Thursday’s 0.7% rally, its biggest since April, to hover near 90.50.

U.S. real rates have moved higher – not great for risk or sentiment, Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a note to clients. Tech is looking pretty shaky.

While Fed officials have consistently said they expect current inflationary pressures to be transitory and for ultra-easy monetary policy to stay in place for some time, they are also increasingly touting the need to at least start talking about a tapering of stimulus.

New York Fed President John Williams said on Thursday that the U.S. economy is still far from the point at which the central bank might begin to withdraw its support, although it makes sense for officials to begin discussing their options for adjusting policy.

Fed Chair Jerome Powell speaks on central banks and climate change at a conference later in the global day.

Investors are carefully parsing the economic data to gauge if inflation could prove sticky enough to force the Fed’s hand on tapering.

Last month, much-weaker-than-expected nonfarm payrolls numbers knocked back those expectations, weakening Treasury yields and the dollar.

This month, economists forecast private payrolls likely rose by 600,000 jobs in May, after increasing only 218,000 in April.

Clearly, traders are covering USD shorts into the jobs data, Pepperstone’s Weston wrote. I am not even going to try and predict this one, it is a lottery, although the so-called ‘whisper number’ is closer to 790,000.

Gold remained weaker after a 2% tumble Thursday, its biggest since February, amid a stronger dollar.



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