Stocks tumbled again Friday in Asia after another round of strong US data reinforced expectations the Federal Reserve will resume its interest rate hikes as officials wrestle with stubbornly high inflation.
After a strong start to the week fuelled by signs that US prices were stabilising, regional markets have taken a turn for the worse as traders come to terms with an extended period of central bank policy tightening.
Minutes from the Fed's last meeting showed officials plan to ramp up borrowing costs again this month, having paused for the first time in more than a year in June, dealing a blow to hopes it was at or near the end of its cycle.
That came as Chinese figures confirmed the world's number two economy had run out of steam, just months after the lifting of painful zero-Covid measures.
And equity-buying sentiment was hammered again on Thursday by news that US private firms created twice as many jobs as expected in June, while the crucial services sector saw solid growth.
The readings pointed to an economy that remained in rude health, even after 10 straight interest rate hikes, and analysts said it solidified bets on a July hike at least.
Treasuries yields spiked on the news, with two-year notes just below five per cent, having hit a 16-year high at one point, while 10-year bonds passed four per cent. The higher rate for shorter-term Treasuries is seen as a signal of a looming recession.
Investors are now girding themselves for the release later Friday of the closely watched non-farm payrolls figures, which are used as a guide to the state of the economy and could provide some clues about the Fed's plans.
All three main indexes on Wall Street sank, while European equities suffered their worst day since March during the US regional banking crisis.
And Asia fared no better, with Hong Kong losing more than one per cent along with Sydney, Seoul and Wellington while Tokyo, Shanghai, Singapore, Taipei, Manila and Jakarta also dropped.
SPI Asset Management's Stephen Innes warned the longer the data points to a strong economy, the longer the Fed will turn the screws.
"As the growth trajectory of the US economy improves, it becomes increasingly more challenging to envision what would cause the Fed to CUT rates anytime soon, as many market participants have been anticipating," he said in a note.
"If the US achieves a soft landing of its economy -- especially if growth reaccelerates and inflation remains mute -- the Fed may be more likely to simply pause its rate hiking cycle until it is sure that inflation does not accompany any growth re-acceleration."
Traders are keeping tabs on China, where US Treasury Secretary Janet Yellen is on a four-day visit for talks with top policy officials aimed at smoothing strained ties between the economic superpowers.
She begins a full day of meetings Friday and is due to meet Premier Li Qiang and her former counterpart, ex-vice premier Liu He, with whom she is set to trade views on the status of the US and Chinese economies, as well as on the international outlook.
An official at the Treasury said while no specific policy breakthroughs were expected, there was hope for productive conversations that could pave the way for future talks.
The meetings come as China battles to kickstart torpid growth, and on Thursday, Li pledged to "spare no time" pushing through specific policies, though analysts said promises of action in recent months have come to little.
