US Equity Futures Lead Asia Lower, Dollar Gains Against Yen

SYDNEY, Oct. 11 (Reuters) – Asian stocks fell on Monday as global inflation anxiety favored commodities as a hedge against US equities, while rising US bond yields pushed the dollar to two-and-a-half-year highs against the Japanese yen

Futures on the Nasdaq and S&P 500 were both down about 0.5% at the start of trading, as oil prices continued their uptrend.

“Bond yields continue to rise, inflation expectations rise and monetary tightening in various forms is becoming more and more prevalent,” ANZ analysts said in a note.

“The global chip shortage will continue until next year, adding even more uncertainty to uneven recoveries,” they said. “Add in the energy shortages, and the economic landscape is materially more sober than the optimism that accompanied the early stages of the global recovery.”

The largest MSCI Asia-Pacific equity index outside of Japan (.MIAPJ0000PUS) was down 0.2% and Australia’s (.AXJO) was down 0.9%. The Japanese Nikkei (.N225) lost 0.5%, after losing 2.5% last week.

The earnings season kicks off this week and is likely to bring stories of supply disruptions and rising costs. JPMorgan reports Wednesday, followed by BofA, Morgan Stanley and Citigroup on Thursday, and Goldman on Friday.

The focus will also be on US inflation and retail sales, as well as the minutes of the latest Federal Reserve meeting which is expected to confirm that a tapering in November has been discussed.

While the US payroll figure was disappointing on Friday, this was in part due to the reopening of problems in state and local education while private sector employment was firmer.

Indeed, with a labor shortage pushing the unemployment rate down to 4.8%, investors were more concerned about the risk of wage inflation and pushed Treasury yields up sharply.

Yields on 10-year bonds were trading at 1.61%, after jumping 15 basis points last week in the biggest such rise since March.

Bonds were also sold in Asia and Europe, with short-term yields in Britain reaching their highest level since February 2020.

BofA analysts have warned that the global inflationary boost will be compounded by energy costs, with oil potentially exceeding $ 100 a barrel amid limited supply and strong demand to reopen.

The winners in such a scenario would be real assets, real estate, commodities, volatility, liquidity and emerging markets, while bonds, credit and stocks would be negatively affected.

BofA recommended commodities as a hedge and rated resources accounted for 20-25% of major stock indices in UK, Australia and Canada; 20% in emerging markets; 10% in the euro area, and only 5% in the United States, China and Japan.

The dollar was supported as US yields exceeded those of Germany and Japan, taking it to its highest since April 2019 against the yen at 112.27.

The euro hovered at $ 1.1566, after hitting its lowest since July of last year at $ 1.1527 last week. The dollar index held at 94.158, just after the recent high of 94.504.

The stronger dollar and higher yields weighed on gold, which offers no fixed yield, leaving it sidelined at $ 1,753 an ounce.

Oil prices rose again after gaining 4% last week to reach their highest level in nearly seven years.

Brent climbed 25 cents to $ 82.64, while US crude rose 41 cents to $ 79.76 per barrel.

Reporting by Wayne Cole; Editing by Christopher Cushing

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