Asian shares fall after wild swings in bonds, currency markets before US jobs data

Asian markets faced turmoil as bond and currency markets swung wildly ahead of crucial US jobs data on October 2nd. The 10-year US Treasury yields hit their highest level since 2002 at 5.34%, following the largest quarterly rise in 32 years, before stabilizing at 5.2512% in Asia. Fiscal concerns in France widened the spread between French and German sovereign bond yields to 140 basis points, the widest gap since 2012, causing European stocks to tumble and the euro to plummet to US$1.1215, its lowest point since May 2025.

MSCI’s Asia-Pacific index excluding Japan fell 0.5%, on track for a weekly decline of 1.7%, while Japan’s Nikkei dropped 0.7% but was expected to recover 3.1% for the week. Mainland Chinese markets were on holiday until October 7th. On Wall Street, futures for the Nasdaq rose 0.3%, and S&P 500 futures edged up 0.1% after a brief rebound driven by a decrease in Treasury yields, helping to lift the market.

Investors are eagerly awaiting the nonfarm payrolls report from the US, with expectations of a 90,000 job increase in September and a steady unemployment rate of 4.1%. The attention will also be on hourly wage growth, as the Institute for Supply Management (ISM) report revealed a significant surge in prices paid, indicating heightened cost pressures.

Chris Weston, head of research at Pepperstone, noted that rising wages could significantly impact US rates, Treasuries, and the dollar. Currently, there is a 25% chance that the Federal Reserve will raise interest rates again in October, down from 69% a week earlier after two top policymakers urged more data before making a decision on rates.

However, a rate hike in December remains fully priced in. Dovish remarks from Fed officials sparked a substantial rally in 2-year Treasuries overnight, with the yield curve steepening as short-term yields fell. The 2-year yield climbed 1 basis point (bp) to 4.8039%, recovering from a 10 bp drop overnight. Meanwhile, the 10-year Treasury yield rose 2 bps to 5.2575%, after falling 6 bps overnight, as the yield curve inverted.

The rout in European bonds, with French yields hitting 14-year highs, may have bolstered safe-haven demand for US Treasuries, the dollar, and the Swiss franc. The US dollar index stood firm at 102.09 on October 2nd, up 0.6% overnight and having climbed 1.1% for the third consecutive week. The euro weakened to US$1.1235, falling 0.8% from the previous day, and the yen slipped to 158.13 per US dollar after Japan's underlying inflation accelerated to 2.7% in September, suggesting more interest rate hikes might be needed.

Oil prices remained stable on October 2nd after surging overnight, with US West Texas Intermediate crude futures trading at $92.84 a barrel, up nearly 3% from the previous day.