U.S. CPI seen sealing case for early Fed taper.
SYDNEY, Dec 6 Reuters -- Asian share markets lagged a bounce in the U.S. and European futures on Monday, while bonds surrendered some of their recent gains and oil rallied as Saudi Arabia lifted its crude prices.
A consumer price report could make the case for an early tapering if the mixed U.S. jobs report did not change market expectations of a more aggressive tightening by the Federal Reserve in November.
There were reports from South Africa that cases of Omicron had only mild symptoms, but the variant spread to about one-third of U.S. states.
Early trade was cautious as MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4%.
Japan's Nikkei fell by 0.6%, even as the government considered raising its economic growth forecast to account for a record $490 billion stimulus package.
After State media quoted Premier Li Keqiang as saying Beijing will cut banks' reserve requirement ratios RRR in a timely manner, Chinese blue chips fell 11% after saying there was no guarantee that it would have enough funds to meet debt repayments.
Wall Street was looking to rally after Friday's late slide, with S&P 500 futures adding 0.4% and Nasdaq futures 0.1%. EUROSTOXX 50 futures went up 1.0% and FTSE futures 0.7%. The survey of households showed a 1.1 million jump in unemployment in November, while the headline U.S. payrolls had underwhelmed in November. Barclays economist Michael Gapen said that the Fed will view the economy as closer to full employment than previously thought.
We expect an accelerated taper at the December meeting, followed by the first rate hike in March. In the year 2022 we expect three 25 basis point hikes. The futures market is almost fully priced for a hike to 0.25% by May and 0.5% by November.
The hawkish outlook is one of the reasons why BofA chief investment strategist Michael Hartnett is bearish on equities for 2022, expecting a rate shock and tighter financial conditions.
He favors real estate, commodities, volatility, cash and emerging markets, while bonds, credit and equity could struggle.
Short-term Treasury yields are higher but the longer-term has rallied as investors wager that earlier hikes will mean slower economic growth and inflation over time and a lower peak for the funds rate.
The spread of the ten-year U.S. yields dropped almost 13 basis points last week and were last at 1.38% last week, shrinking the spread over two-years to the smallest this year.
The rise in short-term rates has helped underpin the U.S. dollar, particularly against growth-leveraged currencies that are seen as vulnerable to the spread of the Omicron variant.
The U.S. dollar hit 13 month peak on the Australian and New Zealand dollar, but its index was relatively steady on the majors at 96.214.
The euro was easing a bit to $1.1295, which was well above its recent trough at $1.1184, while the dollar went up on the safe haven yen at 113.01.
Profit-taking and macroeconomic concerns triggered nearly $1 billion worth of selling across cryptocurrencies, leading to a drop of a fifth of its value on Saturday.
The last time it was at $48,954 was as low as $41,967 over the weekend.
In commodities, gold found some support from the decline in longer-term bond yields but has been trading sideways for several months in a $1,720 1,870 range. It was steady at $1,785 an ounce on Monday.
Oil prices bounced after top exporter Saudi Arabia raised prices for its crude sold to Asia and the United States, and as the indirect U.S.-Iran talks on reviving a nuclear deal appeared to hit an impasse.
Brent climbed $1.45 to $71.33 a barrel, while U.S. crude added $1.46 to $67.72 per barrel.