Asia shares drop, Treasury yields near high as markets brace for US rate rise

SINGAPORE: Asian shares joined Wall Street and Europe in surrendering some recent gains on Friday, retreating on the possibility of faster-than-expected US interest rate increases that boosted 10-year US Treasury yields to an 18-month high overnight.
European shares were headed for a lower start, with financial spreadbetters expecting the Euro STOXX 50 index to open 0.8 per cent lower, Britain’s FTSE 100 to shed 0.7 per cent and Germany’s DAX to begin the day 0.6 per cent lower.
Investors in Europe remain nervous ahead of a constitutional referendum in Italy and a presidential election in Austria this weekend.
Yields for 10-year US Treasuries pulled back to 2.4357 per cent on Friday, after touching an 18-month high of 2.492 per cent on Thursday.
Investors will be looking to the US non-farm payrolls report later in the day for further evidence of improvement in the economy, after data showed factory activity accelerating in November and construction spending at a seven-month high in October.
The strong data have boosted interest rate expectations, which have already been running high due to anticipated inflationary pressures from rising oil prices and President-elect Donald Trump’s promises of fiscal stimulus.
“We’ve seen a super strong streak of data coming out of the US and the market is starting to price, with a higher certainty, more aggressive rate hikes by the Fed,” said Christopher Moltke-Leth, head of institutional client trading at Saxo Capital Markets in Singapore.
“This is a concern for stocks.”
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.9 per cent, and was on track to end the week 0.3 per cent lower.
Japan’s Nikkei, which jumped to an 11-month high on Thursday, closed down 0.5 per cent on Friday, but still posted a weekly gain of 0.24 per cent.
China’s CSI 300 index retreated 1 per cent, shrinking gains for the week to 0.2 per cent. Hong Kong’s Hang Seng index, Asia’s biggest decliner on Friday with a 1.2 per cent drop, is heading for a 0.6 per cent weekly loss.
South Korean shares dropped 0.7 per cent, poised for a loss of 0.2 per cent for the week, after opposition parties said they would propose a motion later on Friday to impeach President Park Geun-Hye over an influence-peddling scandal, with the intention of holding a vote on her impeachment on December 9.
Also contributing to higher inflation expectations is the recent jump in oil prices.
Global benchmark Brent futures jumped to a 16-month high of $54.53 a barrel on Thursday after the Organization of Petroleum Exporting Countries agreed its first output cuts since 2008. Russia also agreed to reduce production for the first time in 15 years.
They pulled back 1.2 per cent on Friday to $53.32 as investors took profits, but are set for a weekly rise of 12.9 per cent.
Having climbed almost 13 per cent in the past two days, US crude CLc1 surrendered some gains on Friday, falling 0.8 per cent to $50.64. It is on track for an increase of 9.9 per cent this week.
On Wall Street, while the Dow Jones Industrial Average set a record closing high, the S&P 500 and the Nasdaq ended the day with losses as expensive technology stocks pulled back.
The dollar, which hit the highest level since February versus the yen earlier on Thursday, was flat at 114.055 yen amid caution over the jobs report.
It remains on track for a weekly gain of 0.8 per cent.
“The dollar could test the 115 yen threshold depending on how the US jobs report turns out,” said Daisuke Karakama, market economist at Mizuho Bank.
The dollar index, which tracks the greenback against a basket of six major global peers, slipped 0.3 per cent on Friday, extending losses for the week to 0.7 per cent.
The British pound touched a near-two-month high versus the dollar on Thursday after Brexit minister David Davis said Britain would consider paying into the European Union budget for market access.
Sterling added 0.2 per cent from Thursday’s close to trade at $1.2617 on Friday, heading for a weekly rise of 1.1 per cent.
The euro also strengthened on Thursday, rising 0.7 per cent, and added 0.2 per cent to $1.06825 on Friday, putting it on track for a 1 per cent increase this week. — Reuters