Asian stocks fall, while the dollar regains ground ahead of US payrolls data

On Friday, Asian stocks fell and the dollar regained some of its footing after disappointing earnings from U.S. tech behemoths dampened sentiment ahead of a key non-farm payrolls report in the United States.

Markets sensed the end of the massive global tightening cycle overnight, after policymakers in the United Kingdom and Europe signalled their intention to pause, sending local bonds higher and currencies lower.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5% on Friday, weighed down by a 0.9% drop in Chinese bluechips and a 1.2% drop in Hong Kong's Hang Seng index.

The Nikkei 225 in Japan outperformed, rising 0.6%.

Disappointment with Google, Apple, and Amazon earnings results dampened sentiment.

On Friday, S&P 500 futures fell 0.5% and Nasdaq futures fell 1.4%.

In Thursday's after-hours trading, tech stocks took a beating, with shares of Apple, Amazon, and Google parent Alphabet all falling.

This dulled the lustre of a strong regular trading session on Thursday, when the S&P rose 1.5% and the Nasdaq rose 3.3%. The increase built on the previous day's strong gains after Federal Reserve Chair Jerome Powell said disinflationary pressures are brewing in the economy, raising hopes of a pause in the Fed's monetary tightening cycle.

Apple forecasted another revenue decline at the start of the year, Amazon warned that its operating profit could fall to zero in the current quarter, and Alphabet, the parent company of Google, missed fourth-quarter profit and revenue targets.

Investors are also watching the fallout from this week's drop in shares of India's Adani group, which resulted in market losses of more than $100 billion as a result of a U.S. short-seller report.

The European Central Bank (ECB) and the Bank of England (BoE) both raised interest rates by 50 basis points on Thursday, with the BoE saying the tide was turning against inflation and the ECB indicating at least one more hike was on the way before reassessing its rate hike path.

Markets reacted by driving European yields lower, with ten-year German bunds falling 22.6 basis points to 2.065 percent, the most since 2011, and Italian bonds falling 40 basis points to 3.887 percent, the most since 2020, on hopes that the ECB's tightening will end soon.

"The wash-up is that the BoE meeting was dovish, and the ECB is now firmly open-minded and data-dependent, and the Fed chose not to fight the market and the market feels validated by that," said Chris Weston, head of research at Pepperstone.

Alan Ruskin, macro strategist at Deutsche Bank, said given the current market price action ahead of the U.S. payrolls data, a softer report would be regarded as endorsing all the favourite trades of the year.

"Not least it would provide the most important evidence to date to suggest that the market's rates pricing is more appropriate than the Fed’s own more hawkish signalling," said Ruskin.

Analysts predict that 185,000 jobs were added last month, the fewest since January 2021, that unemployment increased to 3.6%, and that hourly wage inflation remained flat at 0.3% on a monthly basis, indicating that the strong labour market may have begun to ease.

Futures markets continue to expect another 25-basis-point hike from the Fed at its March policy meeting, implying that this may be the end of the Fed's current tightening cycle. They've also budgeted for one rate cut by the end of the year.

In currency markets, the euro fell further to $1.0891, pulling away from the ten-month high of $1.1033 reached on Thursday.

The pound fell to $1.2206 on Friday, its lowest level in more than two weeks, after falling 1.2% the previous session.

This helped the US dollar recoup the majority of its post-Fed losses, with the dollar index now trading at 101.81, up from its nine-month low of 100.80.

Treasury yields remained largely unchanged. The yield on benchmark 10-year Treasury notes fell 2 basis points to 3.3799 percent, while the two-year yield, which rises as traders anticipate higher Fed fund rates, remained mostly unchanged at 4.0959 percent.

In the oil market, Brent crude futures rose 0.3% to $82.41, while West Texas Intermediate (WTI) crude settled 0.3% higher at $76.09.

Gold was slightly higher. Spot gold was traded at $1916.1 per ounce.