SYDNEY – Asian stocks floundered on Monday amid sharp losses in gold and oil prices, as the dollar hit four-month highs against the euro after an upbeat US jobs report lifted yields from the bonds.
Confidence was shaken by a sudden drop in gold when a breakout of $ 1,750 caused stop loss selling to take it to $ 1,684 an ounce. The last time it was down 1.4% to $ 1,738.
Brent also fell 2% on fear that the spread of the Delta variant would moderate travel demand.
Holidays in Tokyo and Singapore led to weak trading conditions, sending MSCI’s broader Asia-Pacific equity index outside of Japan down 0.5%.
Japan’s Nikkei closed, but futures were trading 100 points below Friday’s close. Nasdaq futures fell 0.4% and S&P 500 futures 0.3%.
Chinese trade data released over the weekend was below forecasts, while Monday’s figures showed inflation slowing to 1% in July, offering no barrier to further political stimulus.
China’s blue chip index was a firmer fraction.
The United States Senate came closest to passing a $ 1 trillion infrastructure package, though it has yet to go through the House.
Investors were still evaluating whether Friday’s strong US payroll report would bring the Federal Reserve closer to reducing its stimulus.
“There is not much disagreement about a taper announcement that will occur sometime between September and December, followed by a real tapering sometime between November and January,” said Rodrigo Catril, senior currency strategist at NAB.
However, the pace of the reduction was still up in the air and would decide when a real rate hike would take place, he said. The Fed is currently buying $ 120 billion in assets per month, so a reduction of $ 20 billion would end the program in six months, while a reduction approach of $ 10 billion would take a year.
The spread of the Delta variant could argue for a more prolonged decline with cases in the US, back to levels seen in last winter’s surge with more than 66,000 people hospitalized.
July CPI figures due this week are also expected to confirm that inflation has peaked, and that second-hand vehicle prices finally recede after huge gains.
There are four Fed officials speaking this week and they will no doubt offer their own opinion on the reduction.
Meanwhile, stocks have been supported primarily by a strong earnings season in the US BofA analysts noted that S&P 500 companies were following a 15% pace in second-quarter earnings, having reported 90 %.
“However, companies with beaten earnings have seen moderate reactions in their share prices the day after the earnings were published, and errors have been penalized,” they wrote in a note.
“The guidance is stronger than average, but consensus estimates for two-year growth suggest a slowdown amid macroeconomic concerns.”
Financials strengthened on Friday as a steeper yield curve is expected to benefit banks’ earnings, while penalizing the tech sector, where valuations are through the roof.
Yields on US 10-year notes rose 1.30% on the employment report, having hit their lowest level since February last week at 1.177%.
That jump gave the dollar a big boost and pushed the euro to $ 1.1754, and briefly to its lowest level since April at $ 1.1740. The dollar also rose to 110.22 yen and fell away from 108.71 yen last week.
That brought the US currency index to 92,882 and closer to the July peak of 93,194.
Oil prices fell further after suffering their biggest weekly drop in four months amid concerns that coronavirus travel restrictions would threaten bullish demand expectations. Brent fell $ 1.44 to $ 69.26 a barrel, while US crude lost $ 1.38 to $ 66.90.
(Edited by Shri Navaratnam)