Asian Futures Drop Amid US Rout on Payrolls; Aussie Bonds Sink

[WELLINGTON] Asian stocks look set to follow the US lower on Monday, while Australian bonds slumped and gold held near a three-month low, after American jobs data spurred traders to pull forward bets on higher interest rates. The yuan climbed amid growth in Chinese exports.

Nikkei 225 Stock Average futures dropped 0.5 per cent by 3am in Osaka on March 7, while contracts on indexes from Australia to Hong Kong slipped at least 0.4 per cent.

New Zealand's NZX 50 Index sank 0.5 per cent by 11.15am in Wellington, following a 1.4 percent rout in the Standard & Poor's 500 Index on Friday, its steepest slump since Jan 5.

The dollar held gains, trading near a 2015 high versus the yen and its strongest level in more than 11 years to the euro. The yuan gained 0.1 per cent. Gold was near its lowest level since Dec. 1 and 10-year Australian bond yields advanced 12 basis points.

Stocks and Treasuries slid Friday, while the Bloomberg Dollar Spot Index soared to a record as US nonfarm payrolls rose more than was projected and the jobless rate sank to a seven-year low. Futures showing the odds of a US rate increase by September jumped to 60 per cent from 49 per cent on Thursday.

Data on Sunday showed Chinese exports grew 15 per cent in the first two months of 2015, while imports fell. Japan may confirm Monday that it exited a recession in the fourth quarter.

"The market's response to the much-awaited US payrolls report was abrupt," Kymberly Martin, a markets strategist in Wellington at Bank of New Zealand Ltd., said in a note to clients. "This will provide sufficient ammunition for the Fed to remove patience from their statement at the next meeting and undertake an initial rate hike in June."

NEXT MEETING

The US central bank, which is set to review policy March 18, has held fast to a pledge this year to be "patient" on increasing borrowing costs as the American recovery strengthens while economies from Europe to China continue to show signs of strain.

Fed Chair Janet Yellen has said the timing of any rate increase will depend on economic data, particularly employment. The prospect of higher US rates has seen the dollar outperform most global peers in 2015.

The Bloomberg dollar index, which tracks the greenback against 10 of its main counterparts, soared 1.2 per cent on Friday, the most since November 2011.

The yen was little changed on Monday at 120.80 per dollar after weakening to 121.28 in the previous session, the lowest level since Dec 8.

Australia's dollar was close to an almost one-month low, trading at 77.07 US cents, while the country's bonds due in a decade yielded 2.76 per cent, the highest rate on a closing basis since Jan 5 after Friday's slump in Treasuries. Yields on similar maturity US notes jumped 13 basis points, or 0.13 percentage point, to 2.24 per cent, a 2015 high.

EURO SLUMP

The euro touched US$1.0827, the weakest level since Sept 4, 2003, with the European Central Bank set to get its bond-buying programme under way. Greece's anti-austerity government is threatening to call a referendum on policy, with a euro-area finance ministers meeting on Monday expected to withhold further aid payments to the debt-saddled nation.

Futures on the Kospi index in Seoul dropped 0.4 per cent in most recent trading at the end of last week, matching declines in contracts on the FTSE China A50 Index traded in Singapore. Hang Seng Index futures lost 0.5 per cent in Hong Kong, while futures on the Hang Seng China Enterprises Index, which tracks Chinese stocks listed in the city, fell 0.8 per cent.

The Bloomberg China-US Equity Index was down 1 per cent in New York on Friday.

CHINA TRADE

Overseas shipments from China rose 15 per cent in the January-February period, surpassing the government's 6 per cent goal for all of 2015.

In February alone, exports surged 48 per cent from a year earlier, with the data skewed by distortions from the timing of the Lunar New Year holiday. Imports slid a more-than-estimated 20.5 per cent in February, capping a fourth straight month of contraction and signaling ongoing weakness in domestic demand.

China lowered its 2015 economic growth target last week to 7 per cent, the slowest pace since 1990, just days after the People's Bank of China cut interest rates for the second time in three months. The yuan climbed to 6.2766 per dollar in early offshore trading Monday.

Stocks in Kuwait fell to a two-month low on Sunday, after oil declined on Friday. West Texas Intermediate crude slipped 2.3 per cent to US$49.61 a barrel, its steepest one-day drop this month, while Brent crude lost 1.2 per cent to US$59.67, capping its biggest weekly decline since the start of January as the dollar's post-payrolls gains damped the appeal of commodities as an investment.

The Bloomberg Commodity Index fell 0.9 per cent Friday to the lowest level since Jan 29.

RATE OUTLOOK

"Investors are looking and focusing entirely on what the Federal Reserve will do in the coming months," Chad Morganlander, a money manager at Stifel, Nicolaus & Co., which oversees about US$170 billion, said by phone on Friday. "Effectively good news in this data point supports the notion that they will raise rates in the not-too-distant future."

The Fed has kept its benchmark, the target for overnight loans between banks, in a range of zero to 0.25 per cent since December 2008 to support the economy.

Most central-bank officials expect to raise rates this year, according to projections released in December. A number said since then an increase around mid-year was possible.

BLOOMBERG