Recession fears leave stocks drifting toward weekly loss

Asian stocks slid toward their worst week in a month-and-a-half on Friday and oil nursed losses, while bonds enjoyed their best bid in weeks as US data and earnings showed signs of weakness.

Figures showed more Americans filing claims for jobless benefits and manufacturing activity in the mid-Atlantic region slumping to its lowest level in nearly three years.

On the heels of other signals that the world's biggest economy is slowing down, the data helped drag Brent crude futures , a bellwether for global activity, down 6 percent for the week, the sharpest drop in about a month.

 

US Treasuries have also rallied, with two-year yields extending Thursday's drop as investors turn for safety and bet the US hiking cycle is all but over. Yields fall when prices rise. Two-year yields fell 4 bps to 4.128 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.9 percent and was down 1.7 percent for the week so far, its worst performance since bank stability worries gripped markets in the middle of March.

"The trend higher in jobless claims clearly shows a slowing in the labor market and plays to views of a US recession in 2023," said National Australia Bank's head of market economics, Tapas Strickland.

 

The US Leading Economic Index, a gauge of future economic activity, also dropped to its lowest level since November 2020 overnight and it is signaling a recession starting mid-2023.

US futures were flat after Thursday's drop with heavy selling on weak results. Tesla, which dropped nearly 10 percent on Thursday as its margins were squeezed, raised some US model prices a bit on its website even though it has been making cuts lately.

The slowdown signals have also weighed on the US dollar as traders bet on some 50 bps in US rate cuts this year -- though in a quiet Asia session the dollar steadied.

The euro is lingering near last week's one-year high at $1.0971. The yen rose slightly to 133.84 to the dollar. The Aussie and New Zealand dollars made small losses.

JAPAN VALUE

 

The Japanese market was a notable outlier in the region, with the Nikkei (.N225) touching an eight-month high and on track for a second consecutive weekly gain.

 

Corporate governance in Japan has suddenly become a cause celebre and seems to be rousing the world's third-largest stock market out of decades of lethargy.

"The value trade has been working," said Puneet Singh, director of quantitative research at Societe Generale in Singapore.

"If you're buying value in Japan, if I'm looking at (price-to-earnings) and just buy the cheap P/E names, that’s it, you’ve outperformed the market."

Shares of Rakuten Bank (5838.T) jumped as much as 40 percent on debut, as investors snapped up the downsized listing.

Japan's consumer inflation held steady above the central bank's target in March, data showed on Friday, keeping alive market bets that the Bank of Japan could phase out its policy of enormous bond buying to pin down government bond yields.

Yields in Japan were broadly steady on Friday, eschewing the lead from the US overnight. The BOJ meets next week.

"It looks like market participants have taken positions in preparation for policy changes ahead of the meeting," said Nomura strategist Naka Matsuzawa, though he expects no change.

"We think that changes at the June meeting are now more likely, as long as financial unrest in the US and Europe does not flare up again."

Elsewhere the mood dragged on bitcoin , which is back below $30,000, while the fall in yields has gold , which pays no income, straddling $2,000 an ounce.

In commodity markets traders are closely watching for producers' and buyers' response to Chilean plans to nationalize the lithium industry. Chile holds the world's largest reserves.