Asia stocks ease, dollar off highs before US payrolls

SYDNEY (Reuters): Asian shares fell on Friday while the dollar ran into some profit-taking after several weeks of strong gains as financial markets turned their attention to looming US payrolls data for fresh catalysts.

Spreadbetters pointed to a firm start for European shares although Wall Street was poised for another wobbly day. E-Minis for S&P 500 were off 0.2% while London’s FTSE futures climbed 0.4%.

Regional trading was relatively quieter as Japan was on holiday.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5%, and looked set for a third straight weekly loss.

Indonesian stocks led the declines, falling as much as 1.5% in early trading before recouping some of those losses. South Korean shares were down 1% and Australian shares eased 0.6%.

The focus for markets will be on the US jobs data due later in the global day, with the April report likely to underscore labour market strength.

Non-farm payrolls probably increased by 192,000 jobs last month, according to a Reuters survey of economists, after rising only 103,000 in March.

But it will be the wages figure that analysts will closely watch.

“A further pick-up in the pace of wage gains could be the ‘smoking gun’ for the Fed to express any shift away from ‘roughly balanced’ risks to inflation,” said Mizuho analyst Vishnu Varathan in a note.

“For now, we expect that reactions may still be subdued given that the runway of evidence remains short; and so the bearish UST and bullish USD trades may not be taking off aggressively just yet.”

Investors were also keeping a close watch on US-China trade talks, though analysts said they had little confidence that the US delegation in Beijing, led by Treasury Secretary Steven Mnuchin, will achieve any breakthrough on the tariff standoff between the world’s two biggest economies.

Chinese shares stumbled, with the blue-chip index off 0.4% and Shanghai’s SSE Composite down 0.3%.

Market battle

Investors were cautious after a largely weak performance on Wall Street on Thursday as some disappointing earnings reports offset strong economic data, while bond yields slid after a surprising slowdown in eurozone inflation.

The US dollar weakened from a recent four-month peak against major currencies during a choppy session, a day after the Federal Reserve ended a policy meeting with no change in rates and a less hawkish statement than investors had anticipated.

Disappointing US company earnings, upbeat data on factory orders and the US trade balance as well as the underwhelming eurozone inflation data made for a challenging trading environment.

“The price action since the FOMC statement indicates a real division of opinion in markets over the US dollar outlook,” said Sean Callow, a strategist at Westpac. The Fed’s reminder that its inflation target was symmetric was a clear negative for Treasury yields, and so the US currency’s recovery was encouraging for dollar bulls, Callow said.

Yet, the dollar had failed to breach key levels such as 110 versus the yen, $1.20 against the euro and $0.75 versus the Australian dollar, he added.

It was last down 0.1% against the yen to 109.1, but was still set for a tiny weekly gain.

“A 13-month low in eurozone inflation should have been a big boost for the dollar index – it was not. The payrolls report may not resolve this market battle,” Callow added.

The US dollar had erased all its 2018 losses in the past two weeks on expectations the Fed will continue to raise rates, even as other major central banks around the world, including the European Central Bank, take longer to reduce stimulus.

The dollar index has risen about 1% so far this week and is on track for a third straight weekly gain.

The euro took a small dip to be last at $1.1969 and is so far down 1.3% this week.

Elsewhere, US crude dipped four cents to $68.39 a barrel, while Brent crude down a shade at $73.58.

Gold was slightly higher with spot gold at $1311.8 per ounce.