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Stocks retreat before US jobs data

Hong Kong - Global stocks dropped, set for the biggest weekly loss since February, and the yen rose before key American jobs data that will help shape the US interest-rate outlook.

Australia’s currency slumped and its bonds surged after the nation’s central bank lowered its inflation forecast.

The Stoxx Europe 600 Index and the MSCI Asia Pacific Index both lost ground, as did S&P 500 futures. Shanghai shares tumbled the most since February as raw-materials prices sank in China. The yen rose against all 16 major peers.

The Bloomberg Dollar Spot Index gained for a fourth day, buoyed by comments from Federal Reserve officials that a June rate hike is possible. US crude oil sank below $44 a barrel and industrial metals were poised for their biggest weekly loss since 2013. Australia’s three-year bond yield fell to a record.

A retreat in global equities gathered pace in the first week of May as data highlighted the fragile state of the world economy. The Reserve Bank of Australia joined the European Union in trimming inflation projections this week, after the Bank of Japan on April 28 pushed back the target date for meeting its 2% goal for consumer-price gains.

Economists predict US non-farm payrolls rose by 200 000 last month, a Bloomberg survey showed before Friday’s report.

“With the US jobs report coming up, investors are holding back,” said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui Asset Management in Tokyo. "They’re watching the yen very closely.”

Four regional Fed presidents said Thursday they were open to considering an interest-rate increase in June, something that’s been almost ruled out by derivatives traders. Fed Funds futures put the odds of a hike next month at around 10%, down from 20% a month ago.

Stocks

The Stoxx Europe 600 Index fell 0.6% as of 09:09, set for a 3.1% weekly loss. ArcelorMittal, the world’s largest steelmaker, dropped more than 2 percent after reporting a 33% slide in first-quarter earnings.

Futures on the S&P 500 declined 0.3% before companies including Berkshire Hathaway and Cigna report earnings.

The MSCI Asia Pacific Index slid 0.6%, set for a 3.3% weekly decline. The Shanghai Composite Index slid 2.8%, while Japan’s Topix index fell 0.1% as trading resumed following a three-day break. Financial markets in Indonesia, South Korea and Thailand were shut for holidays.

“It’s not as bad as it could have been with Japan coming back and that’s been helped by a bit of weakening in the yen during the past couple of days,” said Angus Nicholson, a market analyst at IG in Melbourne. “If we see a strong non-farm payrolls number tonight it will help the dollar move in the right direction and help Japanese equities.”

Sharp plunged 8.5% after the Nikkei newspaper reported the struggling display-maker will post a net loss of ¥300bn for the year through March. Takata also tumbled more than 8% after the US widened recalls of the company’s faulty airbags.

A Tokyo-listed exchange-traded fund that tracks Brazil’s benchmark stock index fell 3% after Fitch Ratings downgraded its assessment of the country.

Currencies

The yen rose 0.3% to ¥106.91/$, trimming its weekly loss to 0.4%. The currency jumped 5% last week, prompting policy makers to warn of possible intervention, as the Bank of Japan unexpectedly refrained from adding to record stimulus at a policy review. Prime Minister Shinzo Abe said on Thursday he was ready to respond to excessive currency moves if needed.

"We expect BoJ to do a U-turn in the coming months by opting for more easing and this is likely to result in renewed yen depreciation," said Salman Ahmed, the London-based chief global strategist at Lombard Odier Investment Managers, which oversees about $165bn. "However, we are sometime away from this dynamic to take hold."

The Aussie dropped as much as 1.4% to a two-month low and was poised for its biggest weekly loss since January. Australia’s central bank said underlying inflation is expected to be 1% to 2% 2016, down from the 2% to 3% it forecast in February. The authority cut its benchmark interest rate to a record low on Tuesday.

The Bloomberg Dollar Spot Index advanced 0.1% on Friday, taking this week’s gain to 1.4%. The yuan was set for a 0.4% weekly loss versus the greenback before China on Sunday releases April figures for trade and foreign-exchange reserves.

Commodities

Copper plunged more than 5% this week in London, on track for its steepest weekly decline since January last year. Concern that demand from China, the world’s biggest user of industrial metals, is waning has slammed prices this week, with the London Metals Exchange metals index down 4.5%, the most since February 2013.

Steel reinforcement-bar futures dropped by a record 9.5% this week on the Shanghai Futures Exchange. Iron ore and coking coal posted similar-sized losses on the Dalian Commodity Exchange after Chinese authorities clamped down on speculators.

West Texas Intermediate crude dropped 1.3% to $43.74 a barrel. WTI has retreated more than 4% over the past five days, after rallying in all but one of the previous 12 weeks.

“Oil fundamentals are improving but the market is still apprehensive,” said Ehsan Ul-Haq, a senior consultant at KBC Advanced Technologies in London. “Only when refiners start complaining about the lack of supply will we see a sustainable recovery.”

Bonds

Australia’s three-year bonds surged, pushing their yield down by as much as 14 basis points to an unprecedented 1.55%. The yield on 10-year US Treasuries held at 1.75%, the lowest in more than three weeks.

“There is still very strong pressure for deflation globally,” said Kei Katayama, a bond manager in Tokyo at Daiwa SB Investments, which has $50.3bn in assets. “If the Fed tightens, people believe the pace will be very, very limited.”


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