Asian Stocks Shaky on Fed Rate Speculation

Asian shares fought to maintain the slimmest of recoveries on Friday amid the speculations that the Federal Reserve might be aiming for one last interest rate hike before pausing, while oil prices fell anew as producers pored over the details of an output cut.

MSCI’s broadest index of Asia-Pacific shares outside Japan moved up 0.4 percent, though that came after a 1.8 percent drubbing on Thursday. Japan’s Nikkei gained 0.8 percent.

Chinese shares, which were higher earlier in the day, dropped into negative territory with the blue chips off 0.1 percent. E-mini futures for the S&P 500 also started steady but were last down 0.1 percent.

Spread-betters, on the other hand, indicated a strong start for Europe with London’s FTSE futures higher1.8 percent.

There was no escaping worries over the US-China relations after the arrest of smartphone maker Huawei Technologies Co Ltd Chief Financial Officer Meng Wanzhou threated to trigger fresh tensions as the 90-day truce rolls.

Markets also face a test from US payrolls data later in the session amid speculation that the economy was nearing a tough patch after years of robust growth.

Federal Reserve Chairman Jerome Powell stressed the strength of the labor market in his remarks made late on Thursday.

Economists surveyed forecast that jobs increase 200,000 in November after climbing 250,000 in October.

“A view has developed of US growth normalizing a little faster than expected from the fiscal ‘sugar rush’, while inflationary pressures remain contained given the sharp fall in the oil price,” said National Australia Bank economist Tapa Strickland. “Payrolls will be very important in helping to validate whether the economy is indeed slowing faster than expected.”

The mood in risk-asset markets brightened a little after a report that said Fed officials are considering whether to signal a new wait-and-see approach after a likely rate hike in their meeting in December.

That only added to recent feverish speculation that the central bank was almost done hiking rates given the concerns about global growth and the disinflationary effects of the collapsing oil prices.

Interest rate futures gained hard in massive volumes with the market now pricing in less than one hike next year. A month ago they had been betting on three rate hikes.

The news helped Wall Street pare sharp losses and the Dow ended Thursday down 0.32 percent, while the S&P 500 lost 0.15 percent. The NASDAQ managed to advance 0.42 percent.

Treasuries pounded on their blistering rally, pushing 10-year yields down to a three-month rock bottom at 2.8260 percent, before last trading at 2.89 percent.

Yields on two-year notes fell a huge 10 basis points at one stage on Thursday and were last at 2.76 percent.

Investors also steamrolled the yield curve to its flattest in over a decade, a trend that has historically preceded economic slowdowns and even recessions.

“The sort of flattening of the yield curve that we have seen recently usually indicates that investors think the Fed is nearing the end of a tightening cycle, and that rate cuts may even be on the horizon,” said analysts at Capital Economics.