San Francisco Frontiers - Asian markets retreat with US rates back in focus

With the political distraction out of the way, temporarily at least, investor attention is turning back to the outlook for US rates, with Federal Reserve boss Jerome Powell due to give a speech later Monday and key jobs data out this week.

"Financial markets were bracing for a shutdown, so there's an element of relief, but it's only a temporary lifting of one of the clouds hanging over the markets now," Yung-Yu Ma, chief investment officer at BMO Wealth Management, told Bloomberg.

"Interest rates and Fed hawkishness remain the name of the game and the main driver of the markets over the next few weeks."

US stocks ended Friday mostly lower as a government shutdown appeared likely after hardline Republicans had tanked an earlier plan to keep the lights on.

In Asian trade Monday, Tokyo fell 0.3 percent, giving early gains spurred by a positive Bank of Japan business confidence survey as sentiment reverted to risk-off.

Tokyo jumped 1.4 percent in morning trade after the Tankan survey showed increasing optimism among Japan's largest manufacturers for a second-straight quarter but that rosy glow soon faded as fears over US rates returned to the fore.

Asian market action on the first day of the new quarter was somewhat subdued with Hong Kong, South Korea and India closed for holidays. Markets in mainland China were closed for a week-long holiday.

Among those trading, Singapore, Sydney, Wellington, Kuala Lumpur and Manila were in the red while Taipei, Jakarta and Bangkok saw gains.

In Europe, London edged up at the open while Frankfurt and Paris also advanced.

With a US government shutdown averted, eyes will be back on Powell -- who joins Philadelphia Fed President Patrick Harker on Monday for a round-table discussion with workers and small business owners -- for any hints on rates and with key jobs data out later in the week. The ISM manufacturing data for September is also due out Monday.

"With one of the potholes in Q4 economic growth seemingly filled temporarily, investors initially responded with a sense of relief during Monday's Asian market opening," said SPI Asset Management's Stephen Innes.

"However, there's a question looming about whether the market will interpret this good news for the economy as bad news for stocks."

With focus shifting back to the "hawkish" Fed, "Friday's jobs report could provide valuable insights into the future direction of US yields and stocks, assuming that interest rates remain a key focus for investors, as the report will significantly influence the Fed's response," said Innes.

On Friday, New York Fed President John Williams said rates could be held at their current peak levels for some time.

On forex markets, the yen was weakening towards the psychological 150 to the dollar level.

The yen's weakness is fuelling speculation that the government may step in to prop up the currency, which has been hammered by the Bank of Japan's refusal to move away from its ultra-loose monetary policy even as the Fed considers lifting interest rates further.

- Key figures at 0715 GMT -

Tokyo - Nikkei 225: DOWN 0.3 percent at 31,759.88 (close)

Hong Kong - Hang Seng Index: Closed for a holiday

Shanghai - Composite: Closed for a holiday

London - FTSE 100: UP 0.1 percent at 7,611.85 points

Brent North Sea crude: UP 0.4 percent at $92.56 per barrel

West Texas Intermediate: UP 0.5 percent at $91.21 per barrel

Euro/dollar: UP at $1.0583 from $1.0576 Friday

Pound/dollar: UP at $1.2213 from $1.2205

Euro/pound: UP at 86.65 pence from 86.64 pence

Dollar/yen: UP at 149.61 yen from 149.40 yen

New York - Dow: DOWN 0.5 percent at 33,507.50 points (close)

J.Peterson--SFF