Asian shares declined on Monday after the release of US economic data that suggested interest rates would have to be raised further and remain on hold for a longer period.
Asian shares edged lower on Monday after upbeat economic data from the United States eased recession risks globally but also suggested interest rates would rise further and remain on hold for a longer period.
Bond markets rallied on Friday after a surprise report on jobs and services left speculators with much of the dollar short and sent the currency up sharply.
The dollar extended its rally on the yen to a three-week top of 132.60 on Monday amid reports the Japanese government offered the job of central bank governor to current deputy Masayoshi Amamiya.
Amamiya is closely aligned with the Bank of Japan's current super-easy policies and is considered by the market to be more dovish than some of the other contenders.
Early gains were later pared to 131.94 yen, but that still helped the dollar tighten its grip on a basket of currencies, having jumped 1.2% on Friday to 103.090. The euro held on at $1.0791 after falling 1.1% on Friday.
In equity markets, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7%, with South Korea down 1.0%.
Japan's Nikkei added 1.1%, encouraged by hopes that the BOJ will keep policy easy.
S&P 500 futures dipped 0.2%, while Nasdaq futures lost 0.3% as a stellar January payrolls report forced investors to price in the risk of more hikes from the Federal Reserve, and the prospect of a cut later in the year waned.
Futures are almost fully priced for a quarter point rate hike in March, and another one likely in May, leaving a peak of 4.9% to 5.0% ahead of the jobs data.
Similarly, the yield on the two-year Treasury now stood at 4.35%, compared with 4.09% before the data, while the 10-year yield climbed to 3.56%.
On Tuesday, a group of Fed officials led by Chair Jerome Powell is set to speak this week, and the tone could intensify. Policymakers from the European Central Bank and the Bank of England will also make an appearance.
Bruce Kassman, head of economic research at JPMorgan, said recent surveys on manufacturing globally also showed a jump in January.
"The data decisively rests the near-term bearish narrative," Kassman wrote in a note. "It appears that the underlying growth momentum did not materially slip through the rumblings in the new year, and US expansion remains firmly on its feet."
"Importantly, we see material risks that developed market rates will need to rise above market estimates of terminal rates for the cycle, even as we expect the Fed to signal a pause next quarter."
Higher rates, and thus yields, will push up equity valuations and challenge the market's bullish outlook for assets, including commodities.
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