SYDNEY, Feb 6 (Reuters) – Asian stocks eased on Monday after a string of upbeat economic data out of the United States dampened recession risk but also suggested interest rates could rise further and stay high longer.
Bond markets took a beating on Friday on stunning jobs and services reports, catching speculators seriously short on dollars and sending the currency higher.
The dollar extended its rally against the yen to a three-week high of 132.60 on Monday amid reports that the Japanese government has offered the post of central bank governor to current lawmaker Masayoshi Amamiya.
Amamiya has been closely involved in the Bank of Japan’s current super-ease policies and is seen by markets as more dovish than some other competitors. Learn more
Early gains were then pared to 131.94 yen, but still helped the dollar hold its ground against a basket of currencies at 103.090, after jumping 1.2% on Friday. The euro was huddled at $1.0791 after losing 1.1% on Friday.
In equity markets, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.7%, with South Korea (.KS11) down 1.0%.
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The Japanese Nikkei (.N225) gained 1.1% on hopes that the BOJ would keep policy loose.
S&P 500 futures fell 0.2%, while Nasdaq futures fell 0.3% as January’s stellar payroll report forced investors to consider the risk of more Federal Reserve hikes and less chance of cuts later in the year. Learn more
Futures are almost fully priced for a quarter-point rate hike in March, and likely another in May, leaving the peak at 5.0% versus 4.9% before the jobs data.
Similarly, two-year Treasury yields were now up to 4.35% from 4.09% before the data, while 10-year yields climbed to 3.56%.
A host of Fed officials are expected to speak this week, led by Chairman Jerome Powell on Tuesday, and the tone could be hawkish. Policymakers from the European Central Bank and the Bank of England will also make appearances.
Bruce Kasman, head of economic research at JPMorgan, noted that recent global manufacturing surveys also showed a rebound in January.
“The data decisively soothes the short-term recession narrative,” Kasman wrote in a note. “It appears that the underlying growth momentum hasn’t noticeably slipped through a loud turn in the new year, and the US expansion remains firmly on its feet.”
“Importantly, we see significant risk that developed market rates will need to rise well above market estimates of terminal rates for the cycle, although we expect the Fed to signal a pause in the next quarter.”
Higher rates, and therefore yields, will stretch equity valuations and challenge the bullish market outlook for assets, including commodities.
Gold, for its part, slid 2% on Friday and was last stuck at $1,865 an ounce.
Oil futures stabilized on Monday, after losing 3% after payroll. Brent rose slightly 11 cents to $80.05, while U.S. crude firmed 13 cents to $73.52 a barrel.
Reporting by Wayne Cole; Editing by Shri Navaratnam
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