Asia shares slip as U.S. jobs stunner hammers bonds

Geopolitics also remained a worry as the White House warned Russia could invade Ukraine any day and French President Emmanuel Macron prepared for a trip to Moscow.

The cautious mood saw MSCI‘s broadest index of Asia-Pacific shares outside Japan dip 0.1% in early trade. Japan’s Nikkei fell 0.4% and South Korea 0.6%.

Both S&P 500 futures and Nasdaq futures were little changed, after last weeks market turmoil saw Amazon.com Inc gain almost $200 billion while Facebook-owner Meta Platforms Inc lost just as much.

BofA analyst Savita Subramanian noted company guidance for 2022 had weakened significantly with most stocks falling following earnings reports.

“Commentaries suggested worsening labour shortages and supply chain issues, with a bigger headwind expected in Q1 than in Q4,” Subramanian said in a note. With wages being the biggest cost component for companies, margin pressure was set to continue.

The January payrolls report showed annual growth in average hourly earnings climbed to 5.7%, from 4.9%, while payrolls for prior months were revised up by 709,000 to radically change the trend in hiring.

“The report not only indicated that payrolls were way more than anyone could have imagined, but there was exceptional strength in earnings which has to add growing concern among Fed officials about upward pressure on inflation,” said Kevin Cummins, chief U.S. economist at NatWest Markets.

Consumer price figures for January are due on Thursday and could well show core inflation accelerating to the fastest pace since 1982 at 5.9%.

As a result, markets moved to price in a one-in-three chance the Fed might hike by a full 50 basis points in March and the real prospect of rates reaching 1.5% by year end.

That sent two-year yields up 15 basis points for the week, the biggest rise since late 2019, and they were last standing at 1.31%. [US/]

In currency markets, the euro continued to bask in the glow of a newly hawkish European Central Bank as markets brought forward the likely timing of a first rate rise and sent bond yields sharply higher.

Klaas Knot, the Dutch Central Bank President and a member of the ECBs governing council, said on Sunday he expects a hike in the fourth quarter of this year.

The single currency was taking in the view at $1.1456, having shot up 2.7% last week in its best performance since early 2020. Technically, a break of resistance around $1.1482 would open the way to $1.1600 and higher.

The dollar fared better on the Japanese yen as the market still sees little chance the Bank of Japan will tighten this year. It was steady at 115.27 yen, while the euro was up at 132.06 yen having climbed 2.7% last week.

The wild swing in the euro left the U.S. dollar index down at 95.436, after shedding 1.8% last week.

Gold was a shade firmer at $1,808 an ounce, but has been struggling in the face of higher bond yields.

Oil prices were up near seven-year highs amid concerns about supply given by frigid U.S. weather and ongoing political turmoil among major world producers. [O/R]

Brent added another 32 cents to $92.97 a barrel, while U.S. crude rose 42 cents to $91.89.