Asian shares slip with Wall Street, oil helps boost bonds

Road signs are reflected on an electric board displaying the Nikkei stock average outside a brokerage in Tokyo, Japan, July 28, 2023. REUTERS/Kim Kyung-Hoon

SYDNEY  – Asian shares slipped with Wall Street on Thursday, while a sharp fall in oil prices to a five-month low promised to further reduce inflationary pressures and helped boost the global bond market.

There was also a soft reading on the U.S. labor market overnight. Analysts note the ADP private payrolls report is historically not a very reliable predictor of the official non-farm payroll report due on Friday, making the weekly jobless claims later in the day more important.

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.5 percent, having been down 1.6 percent so far this month after a 7.3- percent rally in November. Japan’s Nikkei fell 1.3 percent, led by declines in energy and tech stocks.

China’s blue chips eased 0.4 percent to inch closer to a five-year trough that it hit the previous session, after the rating agency Moody’s cut the Asian’s giant’s credit outlook. Hong Kong’s Hang Seng index fell 0.7 percent to hover near a 13-month low.

Investors are awaiting Chinese trade figures later in the day to get a gauge of the strength of the world’s second largest economy.

Overnight, Wall Street was dragged lower by energy stocks as oil prices slid. The Dow Jones slipped 0.2 percent, the S&P 500 lost 0.4 percent, and the Nasdaq Composite fell 0.6 percent.

Oil prices steadied after falling nearly 4 percent overnight to their lowest settlements since June. Worries about global fuel demand drove prices lower, despite pledges from OPEC+ producers that they would keep a tight lid on supply.

READ: Oil falls 4% as build in gasoline stocks fuel demand concerns

Brent crude futures edged up 0.4 percent to $74.60 a barrel while U.S. West Texas Intermediate futures rose 0.5 percent to $69.73 a barrel.

“That’s probably the oil market giving you a bit of a heads up for what they think demand is going to be like over the next few months,” said Amy Xie Patrick, head of income strategies at Pendal Group.

Combined with the recent price actions in the equity and bond markets, Xie Patrick said the markets were starting to worry whether the global economy could be heading to a hard landing next year.

“Even though bond yields have continued to fall, equity markets are no longer rallying, credit spreads are no longer tightening. The markets are starting to wonder whether this is a good kind of bond yield rally or is the bond market telling you something a little bit more sinister.”

A risk appetite index by State Street Global Advisors showed global investors became less pessimistic in November, but they were not in an unbridled rush into risk, with the index edging up to 0 from -0.55 the previous month.

Asian bonds rallied along with long-term Treasuries. Australian 10-year government bond yield hit a 2-1/2 month low of 4.225 percent on Thursday.

The yield on the benchmark U.S. 10-year Treasury note was little changed at 4.1306 percent, after a 11 basis point drop overnight to a three month low of 4.104 percent.

The U.S. dollar hovered near a two-week high at 104.12 against its major peers heading into the NFP release on Friday. Markets have priced in so much easing that they are clearly vulnerable to an upside payroll surprise.

Economists expect the economy added 180,000 new jobs in November, picking up from 150,000 the previous month.

Softening economic data and recent comments from Federal Reserve officials, including Chair Jerome Powell, have heightened expectations that the U.S. rates have peaked and a total of more than 125 basis points in cuts could commerce as early as in March.

Gold prices was 0.2 percent higher at $2,028.81 per ounce.