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Markets wobble as blockbuster data fans taper fears

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Joe Biden has almost doubled the size of a Chinese investment blacklist as he looks to maintain pressure on Beijing after the exit of Donald Trump./AFP
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Jun 04, 2021 - 10:30 AM

HONG KONG, CHINA — Equity markets fluctuated Friday after another set of bumper US economic data reinforced recovery optimism but added fuel to concerns that the Federal Reserve will be forced to tighten its ultra-loose monetary policies sooner than expected.

Wary traders were also keeping tabs on China-US relations after Joe Biden almost doubled the number of firms included on an investment blacklist, in the latest move to show he has no intention of easing pressure on Beijing.

Closely watched figures Thursday showed the US created almost a million new private-sector jobs in May, far more than forecast, while claims for unemployment benefits last week fell below 400,000 for the first time since the pandemic started.

On top of that, a gauge of the crucial US services sector expanded for the 12th straight month and hit a record high.

The readings come after a string of strong reports on the world’s top economy and reinforced the view that the recovery is motoring along.

However, while the rebound is good news, it compounded growing concerns on trading floors that inflation will skyrocket, forcing the Fed to taper its vast bond-buying programme or even lift interest rates to prevent overheating.

The highly accommodative monetary policies of the Fed and other central banks have been a key driver of the blockbuster rally in world equities from their April 2020 troughs.

Eyes will be firmly on the release later in the day of official jobs figures, with warnings that a big miss to the upside could spark a market sell-off.

The “data was supportive for a swift labour market recovery, which threw added fuel onto brewing taper fears”, said OANDA’s Edward Moya. “If (Friday’s) nonfarm payroll report impresses, Treasury yields could surge and investors may take some risk off the table.”

However, he added: “A substantial stock market pullback seems unlikely given the looming infrastructure deal, the economy still being early in the robust part of the recovery, and too much stimulus is still in the system.”

Biden’s blacklist 

Wall Street ended lower, with the Nasdaq leading losses as tech firms are more susceptible to higher rates.

Asia was mixed. Tokyo, Hong Kong, Seoul, Singapore, Taipei, Mumbai and Jakarta all fell but Shanghai, Sydney, Wellington, Manila and Bangkok rose.

London and Paris edged down in early trade but Frankfurt was slightly higher.

“In all honesty there should be little to fear in respect of a Fed tapering of asset purchases as it would be an acknowledgment that things are improving,” said CMC Markets analyst Michael Hewson. “It certainly doesn’t mean the Fed will start to raise rates any time soon.”

Investors were also wary after Biden added to Washington’s blacklist of Chinese firms Americans are banned from investing in, increasing it to 59 from his predecessor Donald Trump’s 31.

The sanctions target companies involved in Chinese surveillance technology used to “facilitate repression or serious human rights abuses”, which “undermine the security or democratic values of the United States and our allies”, the White House said.

Beijing hit out at the decision Friday, with Ministry of Foreign Affairs spokesman Wan Wenbin saying: “Remove these so-called lists that suppress Chinese companies.”

He urged the US to be “fair, just and non-discriminatory”.

Still, analysts said the move appeared to allow room for continued dialogue between the two sides.

“This is by no means a restoration of normal exchanges between two governments, but the situation is much better than in Anchorage,” said Shi Yinhong of Renmin University’s Center on American Studies in Beijing, referring to a frosty meeting in March.

Hopes for Biden’s vast infrastructure spending proposal were given a boost by a report that he had signalled a willingness to revise it down from almost $2 trillion and drop his call for a jump in corporate taxes to 28 percent from 21 percent.

The report in the Washington Post said the offer was a potential new concession in the stalled talks after Republicans baulked at the tax hike. In its place, the president was eyeing a new 15 percent minimum tax, which would take in numerous profitable firms that pay little or nothing, the paper said.

On Friday finance ministers from the European Union’s four biggest economies said there was a good chance of an agreement on a minimum corporate tax deal when leaders of the Group of Seven meet next week.

Key figures around 0810 GMT 

Tokyo – Nikkei 225: DOWN 0.4 percent at 28,941.52 (close)

Hong Kong – Hang Seng Index: DOWN 0.2 percent at 28,918.10 (close)

Shanghai – Composite: UP 0.2 percent at 3,591.84 (close)

London – FTSE 100: DOWN 0.1 percent at 7,060.55

Euro/dollar: DOWN at $1.2111 from $1.2129 at 2130 GMT

Dollar/yen: DOWN at 110.18 yen from 110.30 yen

Pound/dollar: UP at $1.4115 from $1.4104

Euro/pound: DOWN at 85.80 pence from 85.96 pence

West Texas Intermediate: UP 0.5 percent at $69.17 per barrel

Brent North Sea crude: UP 0.5 percent at $71.64 per barrel

New York – Dow: DOWN 0.1 percent at 34,577.04 (close)

— Bloomberg News contributed to this story —

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