* Markets on defensive going into US payrolls data
* Nikkei steadies after two days of losses
* Bond yields up on risk Fed tapers stimulus this month
* European stocks seen opening flat to slightly firmer
By Wayne Cole
SYDNEY, Dec 6 Asian shares spent much of Friday
in a state of suspended animation as tension mounted ahead of
jobs data that could make or break the case for an imminent
scaling back in U.S. stimulus.
The cautious mood looked set to grip European bourses as
well with financial spreadbetters expecting an underwhelming
start for Germany's DAX, France's CAC and
Government borrowing costs from Japan to Australia hit fresh
highs on trepidation the Federal Reserve could start tapering
its $85 billion of monthly debt purchases at its policy meeting
on Dec. 17 and 18.
"It's still 50/50 as to whether they move in December or
wait to see a bit more certainty that recent strength will be
sustained," said Shane Oliver, head of investment strategy and
chief economist at AMP Capital.
While all the uncertainty was a drag for now, he was
optimistic longer term. "Tapering will only occur because the
Fed is more confident the U.S. recovery is sustainable," argued
Oliver. "In other words, mission accomplished."
"And the Fed will likely couple the start to tapering with a
move to further push out expectations for the first rate hike."
For the moment, though, discretion was coming out ahead of
valour and share markets across Asia were mixed at best.
Japan's Nikkei at least managed to steady after
steep falls the previous two days. It closed up 0.8 percent on
Friday, outperforming the rest of Asia.
Dealers said offshore investors remained buyers of
exchange-traded funds and index heavyweights in the firm belief
the Nikkei is on a sustained uptrend given the determination of
the Bank of Japan to beat deflation.
MSCI's broadest index of Asia-Pacific shares outside Japan
was flat, while Shanghai stocks slipped 0.5
percent as China set its yuan at a record high
, continuing the slow appreciation of the currency.
The lead from Wall Street was again less than helpful with
the Dow Jones and the S&P 500 both ending down
0.43 percent. That marked a fifth straight day of losses as
investors fretted about the risk of Fed tapering.
Crucial to that decision could be the payrolls report for
November due later Friday. The median forecast is for an
increase of 180,000 in payrolls with the jobless rate steady at
The market would tend to see anything over 200,000 as
greatly adding to the chance of a tapering this month, while a
result under 150,000 would diminish the risk.
It is worth remembering that total U.S. employment is over
136 million so the difference in a monthly rise in jobs of
150,000 or 200,000 is statistically insignificant, yet it has
the power to move markets massively.
Not helping was that Thursday's U.S. data seemed strong on
the surface but the detail was not so positive. While economic
growth was revised up to an annualised 3.6 percent for the third
quarter, all the increase came in a build up of inventories.
That led analysts to assume inventories would be run down
this quarter and thus drag on growth. Indeed, economists at
Westpac saw a chance that the economy might actually shrink.
"We are not forecasting recession, but don't use these
apparently solid GDP data as evidence tapering is imminent,"
they wrote in a note to clients.
Yet the headline growth number was enough to send yields on
10-year U.S. Treasury notes to 2.87 percent, just
off a three-month peak. Yields in Japan hit their highest in
seven weeks, while 10-year yields in Australia reached territory
last seen in early 2012.
European yields had already climbed after European Central
Bank President Mario Draghi sounded in no hurry to take further
In particular, the market was spooked when Draghi played
down the need for another long-term liquidity operation (LTRO).
Dealers had been hoping for just such an operation to ease a
liquidity squeeze over year end.
As a result yields on two-year German government debt
spiked to 21 basis points, from just 12 at the start
of the week, and took the euro higher in their wake.
The single currency was up at $1.3658 on Friday
having finally cracked tough resistance at $1.3620. The next
chart target was $1.3705/18, which would not be too distant from
the 2013 top of $1.3832.
Against the yen, it edged up to 139.49, but
struggled to break the five-year peak of 140.03. The dollar
hovered near 102.00 yen after a couple of days of
In commodity markets, spot gold held at $1,227 an
ounce, heading for a loss for the week of 2 percent.
U.S. crude was flat at $97.38, cementing gains of 5
percent for the week so far thanks to a drop in U.S. crude
stocks. Brent crude added 31 cents to $111.29.