(Bloomberg) — Shares in Asia mirrored weakness on Wall Street while Treasuries slid following a rally induced by data indicating US labor market softness. Oil stabilized after leading a slump in commodities.
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Equities in Hong Kong and mainland China opened lower, with benchmarks also down in Japan, South Korea and Australia. That followed a third daily decline for the S&P 500, its longest stretch of losses since October. US futures were steady in early Asian trading.
10-year Treasury yields drifted higher after Wednesday’s decline that had pushed it to 4.1%, the lowest since August. The policy-sensitive two-year yield also edged up slightly. Australian bond yields were a touch lower.
The risk-off moves in equities came after private payrolls data that fell short of estimates in a sign of softening in the US employment market. Investors are now awaiting more clues from Friday’s jobs report.
“The slowdown in hiring continues and is becoming more obvious,” said Peter Boockvar, author of the Boock Report. “What I’m mostly focused on right now is the trajectory of activity — and all I see is slowing in multiple places, including now the labor market.”
Oil steadied after a five-day run of losses that drove prices to the lowest level since June on signs that global supplies are eclipsing demand despite plans by OPEC+ to rein in its production into 2024. A key gauge for prices of raw materials earlier tumbled to the lowest level since August 2021.
In Asia, investors braced for the fallout from Moody’s Investors Service cutting its outlook for eight Chinese banks to negative from stable, a day after unveiling a bearish stance on the nation’s sovereign bonds due to concern over the level of debt.
An index of the dollar steadied Thursday after reaching its highest in three weeks. Currencies were otherwise muted during Asian trading hours.
Fed policymakers meet next week for the last time in 2023. While no change is expected in their target for the federal funds rate, they are scheduled to release quarterly forecasts that could alter market-implied expectations. Those bets have been gravitating toward more easing next year in response to weaker-than-forecast economic data.
Markets fully priced six quarter-point rate cuts by the European Central Bank in 2024 earlier on Wednesday, a move that would take the key rate to 2.5%. Although bets were pared slightly later in the day, Deutsche Bank AG helped stoke the dovish sentiment by revising its outlook to also forecast 150 basis points of cuts.
“Inflation fears are melting,” said Prashant Newnaha, a rates strategist at TD Securities. “Central banks believe they have clearly done enough and may need to cut, otherwise real rates may be too high and restrictive.”
Hedge Fund Warnings
Meantime, the Bank of England stepped up warnings about hedge funds shorting US Treasury futures, saying its measure of the net position is now larger than before the “dash for cash” crisis in March 2020.
The net short position has grown to $800 billion from about $650 billion in July, the central bank said, citing calculations based on Commodity Futures Trading Commission data. That suggests a jump in the so-called basis trade, which is where investors seek to exploit price differences between futures and bonds.
In corporate news, Apple Inc., seeking to reverse a decline in Mac and iPad sales, is preparing several new models and upgrades for early next year, according to people familiar with the situation. Advanced Micro Devices Inc., meanwhile, is taking aim at a burgeoning market dominated by Nvidia Corp. by unveiling new so-called accelerator chips targeting the artificial intelligence boom.
Elsewhere, gold extended Wednesday’s gains, while bitcoin traded just below $44,000, a level not seen since June last year.
Key events this week:
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China trade, forex reserves, Thursday
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Eurozone GDP, Thursday
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Germany industrial production, Thursday
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US wholesale inventories, initial jobless claims, Thursday
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Germany CPI, Friday
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Japan household spending, GDP, Friday
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Reserve Bank of Australia’s head of financial stability Andrea Brischetto speaks at Sydney Banking and Financial Stability conference, Friday
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US jobs report, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 10:29 a.m. Tokyo time
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Nikkei 225 futures (OSE) fell 1.3%
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Japan’s Topix fell 1%
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Australia’s S&P/ASX 200 fell 0.2%
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Hong Kong’s Hang Seng fell 0.5%
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The Shanghai Composite fell 0.1%
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Euro Stoxx 50 futures fell 0.5%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0765
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The Japanese yen rose 0.2% to 147.07 per dollar
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The offshore yuan was little changed at 7.1729 per dollar
Cryptocurrencies
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Bitcoin rose 0.2% to $43,911.9
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Ether fell 0.2% to $2,243.46
Bonds
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The yield on 10-year Treasuries advanced two basis points to 4.13%
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Japan’s 10-year yield advanced three basis points to 0.675%
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Australia’s 10-year yield declined three basis points to 4.26%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth.
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