Most Asian stocks fell on Friday, dragged by the technology sector as signs of a firming U.S. economy stoked worries about higher inflation and an earlier withdrawal of Federal Reserve stimulus.
U.S. Treasury yields remained elevated after jumping overnight, while the dollar also held its biggest gain since April, after better-than-expected employment data raised expectations for a strong reading for Friday’s nonfarm payrolls, while a measure of service sector activity climbed to a record high.
Japan’s Nikkei (.N225) fell 0.4% while the broader Topix (.TPX) was about flat, with the services and tech sectors leading laggards.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was off 0.3%, weighed by a 0.7% slide in Taiwan’s tech-heavy stock market.
Chinese blue chips (.CSI300) bucked the trend, rallying 0.6%, after Beijing proposed a reduction in stamp duty for led financial firms. Australia’s benchmark (.AXJO) rose to a record above 7,300 and was up 0.5%.
“Overall the market is still very, very bullish, and the data we got overnight out of the U.S. was very, very positive,” said Kyle Rodda, a market analyst at IG in Melbourne.
“I think the consensus overall is that there’s reasonably limited risk that the Fed is going to pull away the punchbowl.”
At the same time, he said investors were closing tech positions ahead of key U.S. nonfarm payrolls data later in the global day, to shield themselves from potential losses in the event of an upside surprise.
Futures pointed to a slightly lower open for European stocks with the pan-region Euro Stoxx 50 futures set for a 0.1% decline. London’s FTSE futures were mostly flat.
U.S. stock futures, the S&P 500 e-minis , were 0.1% lower, following a 0.4% loss for the index (.SPX) overnight. The Nasdaq Composite (.IXIC) suffered a 1% slide on Thursday, while the Dow Jones Industrial Average (.DJI) fared relatively better, slipping 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 rose as high as 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 around 90.60.
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.
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 increased by 600,000 jobs in May, after rising only 218,000 in April.
“Clearly, traders are covering USD shorts into the jobs data,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a note to clients.
“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 following a 2% tumble Thursday, its biggest since February, to trade 0.2% lower on the day at $1,866.40 per ounce amid a stronger dollar.
Crude oil stabilised following a retreat on Thursday from more than two-year highs after weekly U.S. crude stocks fell sharply while fuel inventories rose more than expected.
Brent futures rose 10 cents to $71.41 a barrel, after touching the highest since May 2019 in Thursday’s session. U.S. WTI added 10 cents to $68.91 a barrel, from as high as $69.40 a day earlier, the strongest since October 2018.