A rout in Japanese shares led Asian markets lower on Friday as a gloomy suite of surveys on Japanese manufacturing sparked heavy fund selling and overshadowed upbeat news from China’s vast factory sector.
A renewed slip in oil prices added to the cautious mood, while the dollar remained on the defensive ahead of the always-pivotal U.S. payrolls report.
Spread betting firm IG also predicted opening losses of between 0.6 and 0.7 percent for the FTSE 100, DAX and CAC 40.
Much of the damage was done by Japan’s Nikkei, which sank over 3 percent in its steepest daily fall since mid-February. A profit-dampening rise in the yen and selling by hedge funds for the new financial year bore some of the blame.
But most pointed the finger at a deeply disappointing survey from the Bank of Japan of major manufacturers, which found sentiment at its lowest in nearly three years.
The report crystallised concerns that the BOJ’s dramatic shift to negative rates was not working, and might never work.
It even outweighed positive surveys from China, which showed factory activity growing for the first time in nine months and a much needed pick-up in the services sector.
Not helping was Standard & Poor’s decision to cut China’s credit outlook to negative, saying Beijing’s reform agenda was likely to proceed more slowly than expected.
Shanghai’s market fell 1 percent while Australia shed 1.6 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan lost 1.6 percent.
More factory surveys are still to come from Europe and the United States and the U.S. jobs report remains a hurdle as any sign of strength in wages might revive the risk of higher U.S. interest rates.
On Wall Street, the Dow had ended Thursday 0.18 percent lower, while the S&P 500 lost 0.2 percent and the Nasdaq edged up 0.01 percent.
It was a muted end to a wild quarter that saw stocks plunge on global growth fears only to rebound as major central banks took ever more aggressive stimulus steps.
The latest twist was this week’s surprisingly dovish turn on policy from Federal Reserve Chair Janet Yellen that saw investors further scale back expectations for how far and fast U.S. interest rates would rise in coming years.
Fed fund futures currently have one quarter-point hike priced in by December, while yields on two-year Treasury paper were down at one-month lows.
Indeed, U.S. Treasuries enjoyed their best quarter in 4½ years as yields on 10-year notes dropped a steep 50 basis points in the three months to March.
The dollar’s reaction has been just as large but in a bearish direction, as the currency suffered its largest quarterly percentage loss in more than five years.
The dollar index, which measures it against a basket of major currencies, hit its lowest since mid-October and was last stuck at 94.645.
The euro was firm at $1.1379 after reaching $1.1411, the first visit above $1.1400 in 5½ months. The dollar also eased to 112.20 yen, having been as high as 113.80 early in the week.
While the weaker dollar had been something of a reprieve for oil, worries about oversupply seemed to dominate in Asia on Friday. U.S. crude fell 54 cents to $37.80 a barrel, while Brent dropped 49 cents to $39.84.
Gold was steadier at $1,231.70 an ounce, after notching up its biggest quarterly gain in nearly 30 years.