Asian shares stumble as US yields advance, dollar buoyant

SYDNEY: Asian shares stumbled on Thursday as U.S. bonds yields hit nine-month peaks and pushed the dollar higher, while investors waited anxiously to see if results from Apple and Amazon justified the tech sector’s sky-high valuations.

Europe looked set for a subdued opening, with EUROSTOXX 50 futures 0.1% lower and FTSE futures up 0.2%. The Bank of England is expected to raise interest rates later in the day.

Both S&P 500 futures and Nasdaq futures were flat, following a wave of selling on Wall Street overnight as investors took profits on five months of gains a day after rating agency Fitch cut the U.S. government’s credit rating.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%, after a sharp drop of 2.3% a day earlier. That compared with a 5.4% monthly gain in July.

Japan’s Nikkei slid 1.3%, bringing its losses so far in August to 2.7%, giving back some of the 7.5% surge seen a month earlier.

The yield on 10-year Japanese government bonds (JGB) briefly rose to 0.6550% on Thursday, the highest since April 2014, prompting the Bank of Japan to step in and conduct bond buying to stop the yields from rising further. It was last at 0.645%.

Long-term U.S. Treasury yields continued to climb on Thursday, after stronger-than-expected private employment data and the announced refunding of the U.S. government’s maturing debt.

U.S. 10-year yields hit a new nine-month peak of 4.1344% while 30-year yields rose 8 basis points to 4.2435%, also a fresh nine-month top.

The recent jump in yields has curbed risk appetite, with Nasdaq and S&P 500 overnight posting their biggest declines since February and April, respectively, after a blistering July driven by better-than-expected earnings and hopes of a soft landing for the U.S. economy.

“I reckon that even though you could argue that the Fitch downgrade is outdated … I think you’ve seen enough movements for some things to be burned and some questions to be asked at these highs,” said Matt Simpson, a market analyst at City Index in Brisbane.

“I reckon at best you probably could look at some choppy trade around these highs or at worst we can have a bit of a deeper pullback.”

Chinese blue chips rose 0.5% while Hong Kong’s Hang Seng index was 0.2% higher, after a private survey showed China’s services activity expanded at a faster place in July, a rare spot of good news for the sputtering economy though in contrast with a decline in official surveys.

Analysts at Morgan Stanley downgraded China shares to equal weight, given the still-negative earnings revisions and weak return on equity and profit margins.

“We believe a better reentry opportunity could be down the road, but more patience is preferred at this moment,” they said in a note on Thursday.

Later in the day, Apple is expected to report the largest third-quarter drop in revenues since 2016 as sales of iPhones slow.

Amazon.com Inc, a bellwether for consumer spending, is expected to report a more than 8% rise in second-quarter revenue, aided by a recovery in the advertising and e-commerce businesses.

The U.S. dollar was buoyant in Asia at a one-month high of 102.75 against its major peers, after the strong private payrolls data added to signs of labour market resilience in the U.S. The closely-watched U.S. nonfarm payrolls report is due on Friday.

Sterling hovered at $1.2701, just a touch above its four-week trough of $1.2680.

Most economists expect the BOE to hike rates by a quarter-point to a 15-year high of 5.25% later in the day (1100 GMT), but the risk is a repeat of June’s surprise half-point increase, which could fuel bets that major central banks are not done tightening yet.

Overnight, Brazil’s central bank cut its benchmark interest rates for the first time in three years and by a larger-than-expected 50 basis points, marking the start of an easing cycle in emerging markets now that U.S. rates have likely peaked.

Elsewhere, oil prices were marginally higher as markets weighed bullish U.S. inventory data and a likely extension of OPEC+ output cuts. Brent crude futures were up 0.2% at $83.37 per barrel and U.S. West Texas Intermediate crude futures rose 0.2% to $79.63.

Gold prices was flat at $1,934.39 per ounce. – Reuters