Asia: Stocks follow US drop as US dollar, bonds fall

[SYDNEY] Asian equity markets slid, paring a quarterly gain, after a slump in US stocks triggered a surge in volatility. The dollar held on to losses and bonds fell as central banks worldwide shift toward a more hawkish tone.

Stocks from Sydney to Hong Kong declined after the S&P 500 Index lost the most in six weeks. The technology sector's woes deepened as investors sold off the year's biggest winners.

The Aussie dollar strengthened as China's official factory gauge rose. Australian 10-year yields jumped for a third day after the benchmark US rate topped 2.29 per cent for the first time in a month. Oil continued to climb back after entering a bear market.

Volatility, absent for much of the year, is back as the debate on normalising central bank policy intensifies after nine years of unprecedented stimulus. That suggests some investors are growing concerned about the economy's ability to withstand a tightening cycle. Technology stocks remain under pressure, while banks have been supported on the prospect for higher rates.

Still, global equities are poised for an eighth month of gains that pushed stocks to a record high at the beginning of last week. US stock investors have been putting their faith in the robustness of earnings as the economy continues its recovery, shrugging off a host of worries from oil's slump into a bear market to political wrangling in Washington.

Bond fund managers, concerned about slowing inflation, will be watching key US inflation data due out later in the day. A report early Friday showed Japan's core consumer prices crept higher for a fifth straight month, but their slow rise means inflation remains far from the Bank of Japan's 2 per cent target.

In China, the factory report adds to evidence that the world's second-largest economy maintained its momentum in the second quarter, giving policy makers room to focus on reining in financial risks and cooling a frothy property sector.

US inflation remains in focus Friday with the core PCE deflator, a favourite Fed measure. Analysts expect the month-over-month number eased to 0.1 per cent for May and the annual rate slowed to 1.4 per cent. Personal income and spending are also expected to grow more slowly than the 0.4 per cent rise in April.

Stocks

Japan's Topix dropped one per cent as of 10:34am in Tokyo, trimming the quarter's gain to 6.3 per cent. Australia's S&P/ASX 200 Index lost 1.4 per cent. South Korea's Kospi declined 0.4 per cent, paring its quarterly advance to 10 per cent. Singapore's Straits Times Index slumped 0.9 per cent.

Hong Kong's Hang Seng Index slid one per cent and the Shanghai Composite Index retreated 0.4 per cent.

Futures on the S&P 500 Index were little changed. The underlying gauge fell 0.9 per cent on Thursday, the most since May 17. It's still up 2.4 per cent this quarter. The Nasdaq 100 Index lost 1.7 per cent, extending its slide this week to pushing its loss in June past 2 per cent.

Currencies

The yen rose 0.2 per cent to 111.93 per US dollar, extending gains to a third day to pare its quarterly loss to 0.5 per cent. The Australian dollar climbed 0.2 per cent, strengthening for a third day.

China's offshore yuan gained for a fourth day, bringing its increase for the week to 0.8 per cent.

The Bloomberg Dollar Spot Index retreated less than 0.1 per cent, heading for a monthly loss of 1.4 per cent. It's down the past four months. The euro slipped less than 0.1 per cent to US$1.1433, after increasing 0.6 per cent on Thursday to the highest levels since last year's Brexit vote.

The pound strengthened 0.1 per cent to US$1.3020, rising for an eighth day. The currency is up 5.5 per cent for the six months.

Commodities WTI crude futures rose 0.4 per cent to US$45.09 a barrel. Oil is up more than 4 per cent this week with prices climbing as government data showed a drop in US gasoline supplies that have remained stubbornly high at the start of the summer driving season.

Gold was steady at US$1,245.07 an ounce, set for its first monthly decline this year.

Bonds

The yield on 10-year Treasuries was steady after rising four basis points to 2.27 per cent on Thursday. The rate has climbed 12 basis points for the week.

Australian benchmark yields climbed seven basis points to 2.57 per cent.

BLOOMBERG