Asian markets traded lower on Friday as investors grappled with wild swings in bond and currency markets ahead of key US jobs data, while elevated oil prices, driven by military strains in the Gulf region, added to market unease. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5% and was on track for a weekly decline of 1.7%, with Japan's Nikkei dropping 0.7% but set for a weekly gain of 3.1%. Hong Kong's Hang Seng rose 0.7% to 24,684.09, though Shanghai Composite remained closed for a public holiday through Wednesday of next week. The decline came as crude oil prices in the United States increased 0.6% to $93.12 per barrel as prospects for an imminent diplomatic resolution in the Middle East diminished, with Brent crude remaining above $102 per barrel. As per CNBC TV18, the US reportedly sent more troops and carriers to the Middle East, while China also suspended oil product exports, stoking fears that global fuel shortages could worsen.
Bond markets were again the centre of volatility overnight, with the benchmark 10-year US Treasury yields hitting the highest since 2002 at 5.34% after capping the biggest quarterly rise in 32 years, though they later retreated and were steady at 5.2512% in Asia. The 10-year Treasury yield rose 2 basis points to 5.2575%, having dropped 6 basis points overnight to ease from a 24-year high of 5.3445% as the brutal sell-off finally tempted some buyers back into the market. Markets currently price in a 25% probability that the Fed will raise interest rates again in October, down sharply from 69% a week ago after two top policymakers staked out an unusually clear case for taking in more data before deciding what to do next with interest rates. A hike in December is still fully priced in according to latest reports. Dovish comments from Fed officials drove a big rally in 2-year Treasuries overnight, with the yield curve bull steepening as short-end yields fell, the 2-year yield was last up 1 basis point at 4.8039%, after falling 10 basis points overnight. As per Pepperstone's Chris Weston, "Risk assets have so far absorbed the rise in US real yields, and long-end nominal Treasury yields remarkably well. However, a sustained increase in term premium could be far more problematic."
Fiscal worries in France pushed the spread between French and German sovereign bond yields above 140 basis points, the widest since 2012, rattling European stocks and hitting the euro hard. The euro was much weaker at $1.1235, having slid 0.8% overnight, and also sank against the yen and the Swiss franc, down 0.8% and 1% respectively. The single currency slid as far as $1.1215, the lowest since May 2025, according to CNBC TV18. The U.S. dollar index, which gauges the currency against six peers including the euro and franc, was firm at 102.09 on Friday, having rallied 0.6% overnight to hit the highest level since April 2025. The yen traded at 158.13 per dollar after data showed underlying inflation in Japan's capital accelerated to an annual rate of 2.7% in September, bolstering the case for further interest rate hikes. The rout in European bonds, with French yields hitting 14-year highs, may have also helped drive safe-haven flows back to US Treasuries, the dollar and the Swiss franc.
Crude oil prices experienced significant gains as supply risks from the Iran conflict intensified. US West Texas Intermediate crude futures were steady at $92.84 a barrel, after finishing nearly 3% higher overnight, as optimism for an imminent diplomatic breakthrough in the Middle East faded. The surge came as US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz, claiming Tehran was desperate to make a deal. Trump denied an Axios report that he's willing to offer sanctions relief and release frozen Iranian funds in exchange for concrete nuclear concessions. Iranian officials have also privately expressed pessimism about reaching an agreement to end hostilities and reopen the strait before the US midterm elections in November, according to people familiar with the matter. Brent crude futures rolled, but they held above $102 a barrel. Oil prices remained firm on Friday after jumping overnight, with the US reportedly sending more troops and carriers to the Middle East, while China also suspended oil product exports, stoking fears that global fuel shortages could worsen.
All eyes are on the US nonfarm payrolls due later in the day, with forecasts centred on a rise of 90,000 jobs in September while the employment rate is likely to be steady at 4.1%. Much attention will be on hourly earnings after the ISM survey showed a huge jump in prices paid, pointing to more cost pressures. As per Pepperstone's Chris Weston, "With the Fed now myopically focused on inflation and price pressures, a hot wages print could prove particularly influential for US rates, Treasuries and the USD." The U.S. dollar index is set for a third straight week of gains, up 1.1%, while Nasdaq futures rose 0.3% and S&P 500 futures inched up 0.1% after the pullback in Treasury yields helped Wall Street stage a late rebound. Several US Federal Reserve officials have indicated that further tightening may be needed, citing resilient economic growth and a strong labour market.
