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MSCI AxJ Index hits five-week low
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Government bonds are losing, Australian bonds are falling
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US payroll slowing, data stands at 12:30 GMT
By Tom Westbrook
SINGAPORE, Jul 7 (Reuters) – Asian equities fell on Friday, capping a turbulent first week of the quarter for financial markets. The dollar stayed high and bonds slumped as resilience in US jobs data prompted investors to brace for interest rate hikes quietly.
The broadest MSCI index of Asia-Pacific stocks outside Japan fell 0.6%, with Chinese bank stocks falling for a fourth straight day and posting a 10% weekly loss as their outlook was gloomy amid the economic slowdown.
Japan’s Nikkei fell 0.6%.
Meanwhile, surprisingly good partial numbers in the US jobs market prompted a sell-off in bond markets.
Two-year Treasury yields surged above 5% and futures prices began to discount the possibility that the Federal Reserve, as forecast, will hike rates twice before the end of the year.
In Asia, 10-year bond yields stabilized at 4.04% after rising more than 17 basis points in two sessions. However, regional markets were under pressure as global selling kicked in and investors, anticipating a spike in interest rates, scrambled.
“People have been very reluctant to the idea of central banks taking cash rates above 5% and 6% and leaving them there,” said Andrew Lilley, chief interest rate strategist at Sydney investment bank Barrenjoey.
“This is a disorderly approximation of reality.”
The yield on two-year German bonds hit a 15-year high on Thursday. In the UK, where traders are bracing for both a recession and interest rates towards 7%, 10-year government bond yields have hit highs since 2008.
Yields on 3-year and 10-year Australian government bonds rose a dozen basis points each on Thursday and another dozen on Friday to hit a decade high.
“These were pretty brutal moves,” said Jack Chambers, senior rates strategist at ANZ in Sydney.
“This suggests that some long positions may have been squeezed out and people trapped,” he said.
The story goes on
“Are we starting to price in the idea that there should be a higher term structure in interest rates? A reassessment may need to be made given the resilience of many economies to higher interest rates.”
Even firmly anchored Japanese government bond yields rose on Friday.
The ADP National Employment Report showed on Thursday that the number of private employees in the US increased by 497,000 last month, compared to an expected increase of 228,000.
Comprehensive non-farm payrolls data is expected at 12:30 GMT on Friday. S&P 500 futures were solid in Asia. European futures rose 0.4%.
The bond market slump was supportive for the US dollar, albeit not by much, as yields soared around the world and fears of intervention left traders too nervous to sell the yen.
The euro is down 0.2% week-on-week to $1.0890. The yen was actually higher on Thursday, trading at 143.70 against the dollar.
The Australian dollar was last seen at $0.6641, posting a small weekly loss after the Reserve Bank of Australia decided to suspend interest rate hikes this week. The kiwi was trading at $0.6174, expecting a slight weekly gain.
Data on Friday showed that wages in Japan rose at their fastest pace in 28 years in May, although they also showed that hours worked rose even faster, so hourly wages actually fell.
Elsewhere, Hong Kong bank stocks extended losses and are heading for their worst week in more than five years amid concerns over exposure to Chinese municipal debt. Goldman Sachs downgraded the sector.
The index fell 0.8% on Friday and is down 10% week-on-week. The Hang Seng fell 0.2% and markets in South Korea and Australia fell more than 1%.
In commodities, Brent crude oil futures were steady at $76.87 a barrel. Non-returning gold was under pressure from higher yields and was unchanged at $1,914 an ounce.
(Reporting by Tom Westbrook; Editing by Edmund Klamann and Kim Coghill)
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