The global stock-market retreat continued Monday in Asia, with many indexes recording declines of at least 1.5% through midday.
The declines followed Friday’s heavy selling in Europe and the U.S. after some downbeat corporate earnings reports and an uptick in wages in the latest U.S. monthly employment report.
The U.S. has had a booming job market for so long that wage increases shouldn’t be unexpected, said Stefan Hofer, chief investment strategist at LGT Bank Asia. However, “the speed of the increase that has caught the market by surprise,” he said.
Also, bond yields have been rising and any acceleration in inflation could prompt central banks to tighten monetary policy faster than expected.
Yields on the benchmark 10-year U.S. Treasurys TMUBMUSD10Y, +0.44% have risen to 2.86% from 2.42% at the start of the year. They started 2017 at 2.43%.
The region’s biggest stock declines were in Japan, where the Nikkei NIK, -2.55% fell below 23000 for the first time this year and was recently down 2.6%.
The index is on pace for its biggest drop since Nov. 9, 2016, when markets initially sold off as U.S. election results showed Donald Trump would be the next president. Since then, equities have essentially been on a straight line upward globally.
Against the backdrop of a broader risk-off mood in markets, the yen rebounded in Asian trading, with the dollar JPYUSD, +0.305980% ¥109.95 from ¥110.15 in New York trading late Friday.
Overall, “everyone is getting cautious,” said Hisao Matsuura, chief strategist at Nomura Japan.
As many Asian stock indexes suffered 1%-plus declines Chinese stocks held up, comparatively. The Shanghai Composite COMP, -1.96% ended morning trading down only 0.2%.
S&P 500 futures were down 0.3% after the index fell 2.1% on Friday, its biggest drop in 17 months.
The global pullback comes after a roaring start to the year for equities. Even with Friday’s drop, the Dow industrials DJIA, -2.54% were up 3.2% for 2018 and the Nasdaq Composite COMP, -1.96% was 4.9% higher. Hong Kong’s Hang Seng Index HSI, -1.09% entered Monday’s trading having risen 9% since the start of the year.
Matsuura said the Bank of Japan’s bond-buying efforts would be crucial for near-term market sentiment. The central bank Friday offered to buy an unlimited amount of government bonds with remaining maturities of five to 10 years to keep yields low.
A push by benchmark U.S. Treasury yields above 3.5% could jolt markets into thinking that monetary conditions had turned restrictive, said LGT’s Hofer.
Until that happens, stock pullbacks this year might be limited to less than 10% this year, said AMP Capital chief economist Shane Oliver. While he said he isn’t expecting an aggressive, 1994-style surge in bond yields or a U.S. recession, 2018 is “likely to be a more volatile year” than 2017.
The rise in volatility is an understandable part of the stock-market cycle in light of prospects for higher inflation, said Felix Lam, a fund manager at BNP Paribas Asset Management in Hong Kong. While “it is a wake-up call ... it has not had anything to do with actual earnings momentum,” which remains robust, he said.
However, while some investors might be tempted to buy on the dips, Lam urged caution on some Asian technology names, where the past year’s stock surge may have gotten ahead of earnings growth. A 2%-or-so pullback on the back of January’s 5% gain and the past year’s 20%-25% rise isn’t much of a bargain, he said.
Commodities also extended selling. Oil futures were down about 1% in Asia while gold fell 0.3%. Crude’s slide, and the post-earnings selloff in Chevron and Exxon on Friday, sent shares of some major Asian oil companies down some 4%.