Benchmark yield climbs to two-month high after strong payrolls

US 10-year Treasury yields climbed to the highest in nearly two months on Friday after a stronger-than-expected September employment report further weakened the odds of big rate cuts at the Federal Reserve’s remaining two meetings this year.

Nonfarm payrolls increased by 254,000 jobs in September, according to the Labor Department’s Friday employment report. Economists polled by Reuters had forecast a rise of 140,000 after a 142,000 increase in August.

The benchmark 10-year Treasury yield climbed to its highest since Aug. 9 and was last up 13.7 basis points (bps) at 3.981%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, posted its biggest daily gain since April 10 and rose to its highest since Sept. 3. It was last up 22.5 bps at 3.925%.

The September payrolls increase came alongside a 4.1% unemployment rate, slightly lower than August’s 4.2%, and a tick up in hourly wages.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was last at a positive 5.5 bps, narrowing from 13.7 bps late on Thursday.

The market has oscillated over the size of an expected second rate cut at the Fed’s November meeting. Despite a 50 bp cut last month, Fed officials have since signaled they are in no rush, a sentiment supported by Friday’s strong labor figures.

Expectations for a 25 bp cut in November skyrocketed following the data, with markets pricing in a 99.8% chance versus 65% late on Wednesday, with a 0.2% chance of no cut at all priced in, according to CME’s FedWatch tool.

“Prior to today’s numbers the question for the market was whether the FOMC would cut by another 50 bps in November or only by 25 bps,” Eric Winograd, US economist at asset manager AllianceBernstein, wrote in a Friday report.

“Now the question is whether they will cut at all or will instead skip a meeting.”

Yields dipped earlier in the week when investors bought safe-haven Treasuries after Iran launched more than 180 missiles against Israel in escalating geopolitical tensions. Domestically, a dockworker strike at US ports which began Tuesday posed an inflation risk, but a deal was reached to end the action late on Thursday.

The 10-year TIPS breakeven rate was last at 2.16%, indicating the market sees inflation averaging about 2.2% a year for the next decade.

The US dollar 5 years forward inflation-linked swap, seen by some as a better gauge of inflation expectations due to possible distortions caused by the Fed’s quantitative easing, was last at 2.471%.

Market participants pointed to consumer and producer price index inflation reports due next week, as well as the coming US elections, as the next big question marks for the economy and interest rates.

“My view is the bond market is going to be rangebound until the elections,” said Subadra Rajappa, US rates strategist at Societe Generale.

“If you get a very strong (CPI) print, I think the market is definitely going to react. But for the most part, I think the market reaction is going to be much more focused on misses.”

In a Friday report, Bank of America economists Stephen Juneau and Jeseo Park wrote, “Inflation continues to move in the right direction, which will allow further cuts. However, we continue to think labor data matters more for size of cuts.”

Jan Nevruzi, vice president of US rates strategy at TD Securities, agreed that next week’s inflation print is unlikely to sway the Fed’s rates path.

“We still anticipate 50 bps of cuts – 25 bps at each of the next two meetings – by the end of the year,” he said.

(Reporting by Matt Tracy; Editing by Kirsten Donovan and Andrea Ricci)

Investors look to earnings to support record-high stock prices

NEW YORK – A high-stakes corporate earnings season kicks into gear next week, with bullish investors hoping results will justify increasingly rich valuations in a US stock market near record highs.

The case for strong US economic growth got a boost on Friday, after labor market data came in far above expectations. The S&P 500 is up 20% year-to-date and stands near record highs despite recent tumult spurred by rising geopolitical tensions in the Middle East.

A key test for the rally will arrive as corporate results begin rolling in next week. Companies need to post healthy profit growth and strong outlooks for next year to sustain valuations that have crept up in recent months: At 21.5 times future 12-month earnings estimates, the S&P 500 is trading near its highest level in three years and is well above its long-term average of 15.7, according to LSEG Datastream.

“One of the few rationales that the bulls can make for these lofty (valuation) multiples is that earnings growth keeps coming in at high levels,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “With prices having run up, you really do need that earnings growth to come in probably at much better than expected levels.”

S&P 500 earnings are expected to have climbed 4.7% in the third quarter from a year earlier, UBS equity strategists said in a report on Wednesday. However, earnings likely grew 8.5% when factoring in the historical rate of positive earnings surprises, the UBS strategists said.

Such profit beats may be needed to fuel more gains in stocks. Since 2010, the S&P 500’s total return has closely tracked the increase in company earnings and dividends, according to Jack Ablin, chief investment officer at Cresset Capital. But the index has run ahead since early 2023, and is now about 18% above expected levels, based on current earnings and dividends, Ablin found.

“The market’s a little bit over its skis here,” Ablin said. “It’s certainly anticipating some pretty strong earnings and dividend growth.”

Data on US consumer prices due next week will give investors another snapshot of the economy. A stronger than expected number, on the heels of Friday’s jobs data, could further curtail expectations for how much the Federal Reserve is expected to cut rates in coming months.

Futures tied to the fed funds rate on Friday showed pricing of a 50 basis point cut at the Fed’s November meeting falling to 5%, from over 30% on Thursday, according to CME FedWatch.

BANKS IN SPOTLIGHT

Major financial firms highlight next week’s earnings reports, with JP Morgan Chase JPM.N, Wells Fargo WFC.N and BlackRock due on Oct 11.

Bank results offer an important view into the economy, including the state of delinquencies and loan demand, said Bryant VanCronkhite, senior portfolio manager at Allspring Global Investments.

More broadly, VanCronkhite will be looking for signs that the Fed’s initial 50-basis point cut – delivered at its monetary policy meeting last month – is already having an effect on the economy through such channels as rising auto sales and other big ticket purchases.

Ideally, such activity will be sustained even if expectations for further rate cuts fall further following Friday’s strong jobs report.

Following the first rate cut, companies ideally will show leading demand indicators are strengthening, VanCronkhite said. “That would probably give me confidence that we’re heading more towards that soft landing,” he said.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and David Gregorio)

Nikkei logs weekly drop as PM Ishiba rattles markets

SYDNEY – Japanese stocks posted their steepest weekly fall in a month on Friday, as Prime Minister Shigeru Ishiba’s seemingly shifting stance on interest rates roiled the yen and unsettled investors, while shipping shares dropped after a U.S. dock strike ended.

Though the Nikkei rose 0.2% to close at 38,635.62 for the day, it ended 3% lower for the week.

The broader Topix was up 0.4% to 2,694 and down 1.7% this week.

Ishiba, an erstwhile critic of the Bank of Japan’s aggressive monetary policy easing, won the backing of his ruling Liberal Democratic Party in a leadership vote last week and set off a surge in the yen.

That has reversed since he struck a dovish tone this week, saying Japan is not in an environment for additional rate hikes, and on Friday he called for a stimulus package to cushion rising living costs.

However, the losses in stocks, which tend to move in the opposite direction to the currency, have not fully recovered.

Uniqlo parent Fast Retailing rose 1.5% and contributed most to the Nikkei’s modest gain on Friday. Sanyo Shokai jumped 10.5% after the clothier announced a buyback.

Oil and coal, rising with oil prices on concerns over a widening war in the Middle East, and financials were among other gainers.

Shipping companies led losses, falling after a faster-than-expected resolution to a U.S. dock workers strike.

Kawasaki Kisen slid 9.7%, Nippon Yusen – which hit a record high on Thursday – dropped 9.4% and Mitsui O.S.K. Lines fell 6.4% in its heaviest trading day in 18 months.

“The early end of the ILA dockworkers’ strike is negative for the container shipping markets as the downward pressure on freight rates will resume,” Linerlytica container shipping analyst Hua Joo Tan said.

(Reporting by Tom Westbrook; Editing by Savio D’Souza and Rashmi Aich)

Oil settles up, biggest weekly gains in over a year on Middle East war risk

NEW YORK – Oil prices rose on Friday and settled with their biggest weekly gains in over a year on the mounting threat of a region-wide war in the Middle East, although gains were limited as US President Joe Biden discouraged Israel from targeting Iranian oil facilities.

Brent crude futures rose 43 cents, or 0.6%, to settle at USD 78.05 per barrel, while US West Texas Intermediate crude futures gained 67 cents, or 0.9%, to close at USD 74.38 per barrel.

Israel has sworn to strike Iran for launching a barrage of missiles at Israel on Tuesday after Israel assassinated the leader of Iran-backed Hezbollah a week ago. The events had oil analysts warning clients of the potential ramifications of a broader war in the Middle East.

Oil prices jumped nearly 2% during the session but pulled back sharply after Biden said that if he were in Israel’s shoes he would consider alternatives to striking Iranian oil fields.

On Thursday, oil benchmarks surged over 5% after Biden confirmed the US was in talks with Israel over whether it would support a strike on Iranian energy infrastructure.

On a weekly basis, Brent crude gained over 8%, the most in a week since January 2023. WTI gained 9.1% week-over-week, the most since March 2023.

An attack on Iranian energy facilities would not be Israel’s preferred course of action, JPMorgan commodities analysts wrote on Friday. Still, low levels of global oil inventories suggest that prices are set to be elevated until the conflict is resolved, they added.

Citing data from ship-tracking service Kpler, they said that inventories are below last year’s levels when Brent was trading at USD 92 and at 4.4 billion barrels the lowest on record.

Brokerage StoneX forecasts oil prices could jump between USD 3 and USD 5 per barrel if Iranian oil infrastructure is targeted.

On Friday, Iran’s Supreme Leader Ayatollah Ali Khamenei appeared in public for the first time since his country launched the missile attack. He called for more anti-Israel struggle.

Iran will target Israeli energy and gas installations if Israel attacks it, the semi-official Iranian news agency SNN quoted Revolutionary Guards deputy commander Ali Fadavi as saying.

Iran is a member of OPEC+ with production of around 3.2 million barrels per day or 3% of global output. The group’s spare production capacity should allow other members to boost output if Iranian supplies are disrupted, limiting oil price gains, Rystad analysts said on Thursday.

Supply fears have also eased in Libya. The country’s eastern-based government and Tripoli-based National Oil Corp on Thursday said all oilfields and export terminals were being reopened after a dispute over leadership of the central bank was resolved.

(Reporting by Shariq Khan in New York, Ahmad Ghaddar in London, and Arunima Kumar in Bengaluru; Additional reporting by Gabrielle Ng in Singapore; Editing by Kirsten Donovan and David Gregorio)

Stocks edge lower as Middle East conflict pushes oil higher

NEW YORK/LONDON – Global stocks fell on Thursday, weighed by tepid trading in equity markets across the US and other major regions, while oil prices jumped, buoyed by rising geopolitical tension from the Middle East conflict.

Wall Street’s main indexes finished lower after trading slightly higher early in the session. Data released on Thursday showed rising US jobless claims, indicating labor market softness, but strong service-sector activity. The closely watched nonfarm payrolls report for September is due on Friday.

The Dow Jones Industrial Average fell 0.44% to 42,011.59, the S&P 500 fell 0.17% to 5,699.94 and the Nasdaq Composite fell 0.04% to 17,918.48.

European stocks finished down 0.93% as investors digested weak business activity survey data from the bloc. MSCI’s gauge of stocks across the globe fell 0.39% to 842.18.

Asia-Pacific shares outside Japan had earlier shed 1.3% overnight, largely driven by Hong Kong stocks .HSI sagging after a sizzling rally, with several markets, including mainland China and South Korea, closed for the day.

Japan’s Nikkei, however, ended up nearly 2% after the country’s newly elected prime minister Shigeru Ishiba said it was not the time to raise interest rates after meeting with Bank of Japan Governor Kazuo Ueda.

Israel bombed Beirut early on Thursday following a year of clashes with Iran-backed Hezbollah. Asked if he would support Israel striking Iran’s oil facilities, US President Joe Biden told reporters on Thursday “we’re discussing that.” He added: “There is nothing going to happen today.”

Brent crude futures settled up 5.03% at USD 77.62 a barrel. US West Texas Intermediate (WTI) crude futures settled up 5.15% to USD 73.71.

“The fact that energy is up where everything else is down pretty significantly is an indication that today’s move is a lot about the escalating conflict in the Middle East,” said James St. Aubin, chief investment officer at Ocean Park Asset Management in Santa Monica, California.

“There’s probably some trepidation or maybe some hesitation about putting money to work ahead of tomorrow’s jobs report.”

Gold prices were flat as the US dollar strengthened against major currencies. Spot gold fell 0.01% to USD 2,657.24 an ounce, while US gold futures GCcv1 settled 0.4% higher at USD 2,679.2.

In currencies, the US dollar index rose to a six-week high, reaching 102.09, the highest since Aug. 19. It last rose 0.33% to 101.98. The euro was slightly down at USD 1.1026, and not far from Wednesday’s low of USD 1.10325, a level last seen on Sept. 12.

Sterling weakened 1.1% to USD 1.3122 after Bank of England Governor Andrew Bailey told the Guardian newspaper that the central bank could become a “bit more aggressive” on rate cuts if inflation continued to ease. Against the Japanese yen JPY=EBS, the dollar strengthened 0.1% to 146.61.

Treasury yields rose after the jobless claims data and service sector report. Two-year Treasury yields were last up at 3.7095% on Thursday, while benchmark 10-year yields were last up at 3.853%.

Markets imply a 35% chance the Fed will cut interest rates by another 50 basis points in November, compared with almost 60% last week, and have around 70 basis points of easing priced in by year-end.

“There are some uncertainties as it relates to the US election and in our near term there’s some volatility as it relates to the Middle East and what’s happening there,” said Arun Daniel, portfolio manager at American Century Investments. “People are cautious. But from a long-term perspective, we’re positive.”

(Reporting by Iain Withers in London and Chibuike Oguh in New York; Editing by Peter Graff, Matthew Lewis and Jamie Freed)

Indexes end lower ahead of US jobs data, Middle East still in focus

NEW YORK – US stocks finished lower on Thursday ahead of Friday’s monthly US payrolls report and as investors kept a watchful eye on the growing conflict in the Middle East.

Data on Thursday showed that the number of Americans filing new applications for unemployment benefits rose marginally last week, while Hurricane Helene and strikes at ports could distort the labor market picture in the near term.

Friday’s jobs report for September is considered key for the outlook for US interest rates. Economists polled by Reuters expect 140,000 job additions, while the unemployment rate is anticipated to stay steady at 4.2%.

Investors are eager for more data on the labor market after the Federal Reserve last month cut its benchmark interest rate by an unusually large 50 basis points, the first reduction in borrowing costs since 2020.

“It looks like investors are cautious ahead of the jobs report tomorrow,” said Adam Sarhan, chief executive of 50 Park Investments in New York.

Also, he said, “it’s normal to see some profit-taking after a big rally like we’ve had over the last two, three weeks.”

The Cboe Volatility index, Wall Street’s fear gauge, rose to 20.49, its highest closing level since Sept. 6.

Israel’s military told residents of more than 20 towns in south Lebanon to evacuate their homes immediately on Thursday.

The Dow Jones Industrial Average fell 184.93 points, or 0.44%, to 42,011.59, the S&P 500 lost 9.58 points, or 0.17%, to 5,699.96 and the Nasdaq Composite eased 6.65 points, or 0.04%, to 17,918.48.

The S&P 500 remains up 19.5% for the year so far.

Traders are now pricing in a 35% probability of a 50 basis point cut next month, down from 49% a week ago, the CME Group’s FedWatch Tool shows.

The benchmark index briefly turned positive after the Institute for Supply Management survey showed US service sector activity jumped to a one-and-a-half-year high in September, further evidence that the economy stayed robust in the third quarter.

“Once again, services is doing the heavy lifting keeping this economy humming along,” said Brian Jacobsen, chief economist at Annex Wealth Management.

But also, he said, “oil prices have moved higher and the port strike can really throw a monkey wrench in things.”

Energy shares gained along with a surge in oil prices as concerns mount over a widening regional conflict in the Middle East that could pose a threat to global crude flows. The S&P 500 energy index rose 1.6%.

A workers’ strike on the East and Gulf coasts entered its third day. Morgan Stanley economists said a prolonged stoppage could raise consumer prices, with food prices likely to react first.

Constellation Brands shares fell 4.7% after the beer maker maintained its sales and profit forecast for fiscal year 2025.

Results from some of the big US banks are expected to unofficially kick off third-quarter S&P 500 earnings at the end of next week.

Declining issues outnumbered advancing ones on the NYSE by a 2.13-to-1 ratio; on Nasdaq, a 1.99-to-1 ratio favored decliners.

The S&P 500 posted 25 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 63 new highs and 114 new lows.

Volume on US exchanges was 11.01 billion shares, compared with the 12.08 billion average for the full session over the last 20 trading days.

(Additional reporting by Johann M Cherian and Purvi Agarwal in Bengaluru and Chuck Mikolajczak in New York; Editing by Pooja Desai)

China stimulus draws investors back to offshore bonds of troubled property sector

HONG KONG – Some Chinese and global institutional investors are revisiting Chinese property bonds, betting on an improvement in outlook as the government accelerates efforts to boost economic growth and revive a property sector in the throes of a debt crisis.

Investors began returning after the announcement on Tuesday of the most aggressive stimulus measures since the pandemic, mostly targeting the property sector and triggering a rally in the offshore bonds of property developers.

Credit investment specialist Beijing G Capital Private Fund Management Center placed orders worth “a few dozens of millions of yuan” to buy property bonds for the first time in several months, said its chairman, Li Gen.

“We saw determination to revive the property sector … which is a sea change” from efforts of recent years, said Li.

The rally underscores the extent to which the stimulus is restoring confidence in the sector, though analysts are split on prospects for revival in the near term.

The sector, a pillar of the world’s second-largest economy, has lurched from one crisis to another since 2021 after a regulatory crackdown on debt-fuelled construction spooked investors and lenders alike, squeezing access to funds.

Sales slowed and many developers defaulted on repayment obligations, pushing the value of developers’ US dollar-denominated bonds to historic lows.

The bonds of leading developers which did not default – including China Vanke 000002.SZ, 2202.HK and Longfor Group 0960.HK – have been among the rally’s biggest gainers.

Vanke dollar bonds maturing in November 2027 rose as far as 70 cents against the dollar as of Thursday from 49 cents before Tuesday’s announcement, Duration Finance data showed.

Longfor dollar bonds due April 2027 reached 84 cents from 75 cents over the same time frame, the data showed.

Offshore bonds of developers that defaulted also perked up, with Country Garden’s 2007.HK dollar bonds due September adding around 2 cents to trade at around 9.1 cents.

The prices of property shares have also rallied since the announcement.

‘POSITIVE STANCE’

Investor sentiment received a further boost two days after the stimulus announcement when China’s leaders pledged to meet the 2024 economic growth target of roughly 5% and “stop decline” in the housing market.

On Sunday, Guangzhou became the first top-tier city to lift all curbs on home purchases, while Shanghai and Shenzhen said they would lower the minimum down payment ratio for first home buyers and make purchases by non-local buyers easier.

Enhanced Investment Products, a USD 400 million Hong Kong-based hedge fund, has been increasing its holdings of Vanke 2027 dollar bonds, said Chief Investment Officer Jason Jiang.

“While the stock rebound could be more significant, buying Vanke bonds provides a better safety margin,” Jiang said.

A trigger for where the market will go next might be home sales data due for release after China’s week-long Golden Week holiday which ends on Oct. 7, Jiang said.

Another Hong Kong-based credit fund manager said property bonds made up as much as 20% of their portfolio having stocked up before announcement thinking them over-sold.

It has been cashing out since due to uncertainty about whether the measures could lift new home sales enough to revive the sector in the near term, said the manager, declining to be identified as they were not authorised to speak to the media.

Distressed debt hedge fund Gramercy Funds Management, based in Greenwich in Connecticut, US, has a portfolio of bonds of defaulted developers, betting on a sector revival. The rally has boosted returns and improving macro and sector fundamentals will boost them further, said Deputy CIO Philip Meier.

“The latest actions by the Chinese authorities underpin our positive stance and substantially de-risk the case for owning these bonds,” said Meier.

(Reporting by Xie Yu and Summer Zhen; Editing by Sumeet Chatterjee and Christopher Cushing)

OPEC+ still has an Asia dilemma as crude imports remain soft: Russell

LONDON – The OPEC+ group of crude oil exporters is still planning on lifting output from December, but it will be doing so against a backdrop of weak demand in the top-importing region of Asia.

Asia’s imports of crude were 27.05 million barrels per day (bpd) in September, up marginally from August’s 26.47 million bpd, according to data compiled by LSEG Oil Research.

The largely steady outcome for September arrivals was the result of region heavyweights China and India cancelling each other out.

China, the world’s biggest oil importer, saw arrivals of 11.43 million bpd in September, down from August’s 11.61 million bpd, while India’s imports were 4.94 million bpd, up from 4.71 million.

However, the more important numbers for the oil market are the year to date figures, which show Asia’s imports were 26.7 million bpd in the first nine months of the year, down 200,000 bpd from the 26.9 million bpd for the same period in 2023.

Asia accounts for about two-thirds of global seaborne crude imports, and it’s this market that tends to drive the price benchmarks such as Brent futures.

Asia’s lower oil imports for the first three quarters of 2024 undermine the forecasts for global demand growth made by the Organization of the Petroleum Exporting Countries.

OPEC’s September monthly report forecast that global demand growth in 2024 will be 2.03 million bpd, a slight 80,000 bpd reduction from its previous forecast.

But much of the forecast relies on Asia, with OPEC expecting China’s demand to rise 650,000 bpd, India by 270,000 bpd and the rest of Asia by 350,000 bpd.

The volumes tracked by LSEG show that import growth in Asia is nowhere close to meeting the OPEC forecast.

Of course, crude imports are only one aspect of total demand growth, albeit the most important. Others include domestic oil production, inventory movements and net imports of refined products.

But even if these factors are positive for overall demand growth in Asia, they are very unlikely to be enough to offset the visible weakness in the region’s crude imports.

PRICE BOOST FOR DEMAND?

There is some hope that Asia’s crude imports may increase toward the end of the year, as volumes tend to respond to lower prices, once adjusting for a lag of up to two months to account for when cargoes are arranged and physically delivered.

Global benchmark Brent futures trended weaker since mid-July, falling from a high in that month of USD 87.95 a barrel on July 5 to a low of USD 68.68 on Sept. 10.

That 22% decline may well be enough to spark renewed buying interest, especially by Chinese refiners, who have a track record of boosting imports when prices weaken, but cutting back when they rise.

It’s also possible that imports will rise in other top buyers such as Japan and South Korea as refiners ramp up output ahead of peak winter demand.

But even with a recovery in the fourth quarter, it’s still likely that Asia’s import growth in 2024 will fall short of expectations.

This means that OPEC+, which brings together OPEC and allies including Russia, will be increasing production at a time when demand growth is still uncertain.

The group held an online joint ministerial monitoring committee meeting on Wednesday, meeting market expectations for no change in policy.

This puts OPEC+ on track to ease its output cuts by 180,000 bpd from December, the group having postponed its earlier plan to raise production from October onwards.

Of course, OPEC+ retains the option to delay any increase to production further, but doing so risks ceding even more market share to producers outside the group, such as those in both North and South America.

In addition to uncertainty over what OPEC+ will ultimately decide, the crude market is grappling with the risks of a wider conflict in the Middle East, including the possibility that Israel may target Iran’s oil infrastructure in retaliation for Tehran’s missile barrage this week.

The tensions have resulted in a premium being once again priced into crude, with Brent rising to a one-month of USD 76.14 during Wednesday’s trade.

This premium is likely to persist until there is some de-escalation in the Middle East, and if that does occur, then it’s likely the market will once again focus on the broader demand concerns.

(Reporting by Clyde Russell; Editing by Elaine Hardcastle)

Oil’s shadow over world markets darkens

What comes down must go up.

And so it is with oil, whose rise on escalating fears over a deepening conflict in the Middle East is casting an increasingly dark shadow over world markets as the week draws to a close.

Brent crude leaped more than 5% on Thursday for its biggest rise in a year, bringing the week-to-date gains to more than 8%. If oil holds steady on Friday, it will clock its biggest weekly rise since January last year.

It’s true that oil’s rebound is coming from a low base and prices are back to where they were only a month ago, but world stocks and investors’ risk appetite are beginning to feel the heat.

The oil price is still around 10% lower than it was a year ago and has been negative on a year-on-year basis since July, a dynamic that has highlighted the mounting disinflationary pressures around the world.

But it was down nearly 30% year-on-year only a few weeks ago. If geopolitical tensions persist and oil continues to rise, investors may need to rethink their inflation outlooks.

US Treasury yields are rising and the yield curve is steepening, led by the long end, which suggests longer-term inflation worries may be creeping into investors’ minds.

For Asia, the tailwinds from China’s stimulus bonanza last week appear to be fading in the face of growing headwinds from oil and risk aversion.

Another notable consequence of escalating geopolitical tensions is the burst of safe-haven demand for the US dollar. The dollar index on Thursday hit a six-week high, and is on track for its biggest weekly rise since April.

Put the two together – higher Treasury yields and a stronger dollar – and it’s not a particularly attractive backdrop for Asian markets. Especially on a Friday, a day after the MSCI Asia ex-Japan index hit its highest level since January 2022.

The Asian economic calendar on Friday is fairly light, with consumer inflation from the Philippines, retail sales data from Singapore, services purchasing managers index, and manufacturing PMI reports from India and Hong Kong, respectively, as the main releases.

Global events are likely to set the market tone on Friday.

Investors in Asia may also be of a mind to play it safe ahead of the US non-farm payrolls report for September out of Washington on Friday morning. This and the October data will go a long way to determining the size of the expected interest rate cut in early November.

Rates futures market pricing is currently evenly split over a 25- or 50-basis-point cut.

Here are key developments that could provide more direction to Asian markets on Friday:

– Philippines inflation (September)

– India services PMI (September)

– Singapore retail sales (August)

(Reporting by Jamie McGeever; Editing by Bill Berkrot)

Dollar hits one-month peak to yen as Fed seen taking time with rate cuts

TOKYO – The dollar rose to a one-month high versus the yen on Thursday as robustness in the US jobs market backed the idea that the Federal Reserve does not need to rush to cut interest rates.

The yen came under strong selling pressure on Wednesday after Japan’s new prime minister said the country is not ready for additional rate hikes, following a meeting with the central bank governor.

The euro languished not far from a three-week trough reached in the previous session, after normally hawkish European Central Bank policymaker Isabel Schnabel took a dovish tone on inflation, cementing bets for a rate cut this month.

The safe-haven US currency saw some additional demand on Wednesday after Iran launched a salvo of some 180 ballistic missiles into Israel, spurring a vow of retaliation and stoking worries of all-out war.

The dollar index, which measures the currency against the euro, yen, and four other top rivals, ticked up to 101.70 as of 0023 GMT, a three-week high, extending a 0.45% climb from the previous session.

Private US payrolls increased by a larger-than-expected 143,000 jobs last month, the ADP National Employment Report showed on Wednesday, raising expectations for a strong reading for potentially crucial monthly non-farm payrolls figures on Friday.

Currently, traders lay 34.6% odds of another 50 basis-point US rate cut on Nov. 7, after the Fed kicked off its easing cycle with a super-sized reduction last month. That’s down from 36.8% odds a day earlier, and 57.4% odds a week ago, according to the CME Group’s FedWatch Tool, but still seems too high, according to Ray Attrill, head of FX strategy at National Australia Bank.

Although the ADP report is often a poor predictor of the non-farm payrolls number, Wednesday’s data “does reduce the odds of an outsized downside miss on payrolls,” Attrill said.

“I do think that if the payrolls report overall is not too shabby tomorrow night, then we will see that pricing (for a 50 basis-point cut) coming in quite significantly.”

The dollar added 0.09% to 146.575 yen after earlier reaching 146.885 for the first time since Sept. 3.

Dovish Bank of Japan policymaker Asahi Noguchi, who dissented against the rate hike in July, will give a speech later in the day.

The euro was little changed at USD 1.10455, sitting not far from Wednesday’s low of USD 1.10325, a level last seen on Sept. 12.

Sterling was steady at USD 1.3261.

The Australian dollar was flat at USD 0.6884.

Risk-sensitive currencies were sold off on Wednesday in the initial knee-jerk reaction to Iran’s offensive, but there has been little sign of retaliation by Israel as yet, allowing traders to recover their poise.

“Markets are inherently bad at trying to price tail risk,” said National Australia Bank’s Attrill.

“Those events are things that markets deal with as and when” they happen, he said. “Markets are aware of it, but they’re sticking to their knitting I think, which is focusing on economic fundamentals.”

(Reporting by Kevin Buckland; Editing by Jamie Freed)

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