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

Asian shares declined on Friday amidst volatile shifts in bond and currency markets, preceding crucial US employment data. Investors navigated a turbulent bond market, where the benchmark 10-year US Treasury yield reached its peak since 2002 at 5.34% following the largest quarterly surge in 32 years before moderating to 5.2512% in Asia.

The fiscal unease in France caused the gap between French and German sovereign bond yields to exceed 140 basis points, the widest since 2012, unsettling European stocks and the euro, which plummeted to $1.1215, its lowest level since May 2025. In Asia, the MSCI’s largest index of Asia-Pacific shares outside Japan slipped 0.5%, with a weekly decline forecasted at 1.7%.

Japan's Nikkei experienced a 0.7% drop but was expected to rebound by 3.1% for the week. Chinese markets were closed for a national holiday until the following Wednesday. Futures for the Nasdaq rose 0.3%, while S&P 500 futures edged up 0.1% following the decline in Treasury yields, fueling a late Wall Street rebound. The focus remains on the US nonfarm payrolls release later in the day, with projections anticipating a 90,000 job increase in September and a stable employment rate at 4.1%.

The latest ISM survey highlighted an unprecedented surge in prices paid, signaling heightened cost pressures. Chris Weston, head of research at Pepperstone, suggested that a robust wages report could significantly impact US rates, Treasuries, and the USD. Market projections indicate a 25% chance of a Fed rate hike in October, down significantly from 69% a week prior after two top policymakers advocated for more data before deciding on interest rate adjustments.

However, a rate increase in December is still expected. Dovish remarks from Fed officials spurred a significant rally in 2-year Treasuries overnight, broadening the yield curve as short-term yields fell. 2-year yields surged 1 basis point (bp) to 4.8039%, after falling 10 bps the previous day. The 10-year Treasury yield climbed 2 bps to 5.2575%, after dropping 6 bps overnight, following a sharp sell-off that attracted some buyers back into the market.

The EU bond market turmoil, with French yields reaching 14-year peaks, may have encouraged safe-haven investment in US Treasuries, the dollar, and the Swiss franc. The US dollar index, which tracks the currency against six counterparts including the euro and franc, remained robust at 102.09 on Friday, following a 0.6% overnight increase, reaching the highest level since April 2025.

The dollar index is set for three consecutive weeks of gains, up 1.1%. The euro weakened to $1.1235, dropping 0.8% overnight, and also depreciated against the yen and the franc by 0.8% and 1%, respectively. The yen reached 158.13 per dollar after Japan's underlying inflation accelerated to 2.7% annualized in September, reinforcing the case for additional interest rate hikes.

Oil prices remained stable on Friday, having surged overnight; the US reportedly dispatched additional troops and carriers to the Middle East, while China halted oil exports, fueling worries over potential global fuel shortages. West Texas Intermediate crude futures were steady at $92.84 a barrel, after finishing up nearly 3% overnight. Brent crude futures rolled but stayed above $102 a barrel.