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

SINGAPORE: Asian shares joined Wall Street and Europe in surrendering some recent gains yesterday, 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 18month 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 MoltkeLeth, head of institutional client trading at Saxo Capital Markets in Singapore.

“This is a concern for stocks.” MSCI’s broadest index of AsiaPacific 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. — Reuters