Asian stocks slid toward their worst week in a month-and-a-half on Friday and oil nursed losses, while bonds enjoyed their best bid in weeks as U.S. data and earnings showed signs of weakness. Overnight figures showed more Americans filing claims for jobless benefits and manufacturing activity in the mid-Atlantic region slumping to its lowest level in nearly three years.
On the heels of other signals that the world’s biggest economy is slowing down, the data helped drag Brent crude futures, a bellwether for global activity, down 2.4% for their steepest single-day drop in five weeks. U.S. Treasuries rallied, with two-year yields down more than 9 basis points overnight as investors turned for safety and bet the U.S. hiking cycle is all but over.
Early in the Asia day MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.3% lower and down 1% for the week so far, its worst performance since bank stability worries gripped markets in the middle of March. “The trend higher in jobless claims clearly shows a slowing in the labour market and plays to views of a U.S. recession in 2023,” said National Australia Bank’s head of market economics, Tapas Strickland.
The U.S. Leading Economic Index, a gauge of future economic activity, also dropped to its lowest level since November 2020 overnight and it is signalling a recession starting mid-2023. The S&P 500 fell overnight, too, with some heavy selling on weak results. Tesla shares tumbled 9.7% after the electric vehicle maker posted its lowest quarterly gross margin in two years. AT&T shares dropped 10.4% after the wireless carrier missed revenue and cash flow estimates.
The slowdown signals have also weighed on the U.S. dollar as traders bet on some 50 bps in U.S. rate cuts this year. Moves were slight in Asia trade, but the euro is lingering near last week’s one-year high at $1.0971. The yen hovered at 134.11 to the dollar, though the New Zealand dollar nursed losses at $0.6162 after Thursday’s softer-than-expected inflation data.
The Japanese market was a notable outlier in the region, with the Nikkei touching an eight-month high and on track for a second consecutive weekly gain. Corporate governance in Japan has suddenly become a cause celebre, and seems to be rousing the world’s third-largest stock market out of decades of lethargy.
“The value trade has been working,” said Puneet Singh, director of quantitative research at Societe Generale in Singapore.”If you’re buying value in Japan, if I’m looking at (price-to-earnings) and just buy the cheap P/E names, that’s it, you’ve outperformed the market.”
Japan’s consumer inflation held steady above the central bank’s target in March, data showed on Friday, keeping alive market bets that the Bank of Japan could phase out its policy of enormous bond buying to pin down government bond yields. Yields in Japan were broadly steady on Friday, eschewing the lead from the U.S. overnight. The BOJ meets next week.
“It looks like market participants have taken positions in preparation for policy changes ahead of the meeting,” said Nomura strategist Naka Matsuzawa, though he expects no change. “We think that changes at the June meeting are now more likely, as long as financial unrest in the U.S. and Europe does not flare up again.” Elsewhere the mood dragged on bitcoin, which is back below $30,000, while the fall in yields has gold, which pays no income, supported at $2,002 an ounce.
In commodity markets traders are closely watching for producers’ and buyers response to Chilean plans to nationalise the lithium industry. Chile holds the worlds largest reserves. In the oil market, at $80.79 a barrel, Brent is also below its 50-day moving average for the first time since oil producers unexpectedly announced extra production cuts two weeks ago.