Stocks in Asian markets hit 2-week low on Monday with the U.S. Federal Reserve preparing to roll back stimulus on strong jobs data, while the dollar hit a 6-wk high against the yen and a three-year high against a basket of major currencies.
Chinese stocks and regional sentiment were hurt by Beijing's plan to choke off credit to force consolidation in industries plagued by overcapacity as it seeks to end the economy's reliance on investment funded by cheap debt.
European shares were expected to open higher, however, with Britain's FTSE 100 seen trading up as much as 1% and Germany's DAX up as much as 0.7%, according to spreadbetters.
U.S. employers added 195,000 new jobs to their payrolls last month, beating expectations of 165,000. Adding to the positive sentiment, the figures for April and May were revised up by a combined 70,000. The unemployment rate held steady at 7.6% as more people entered the workforce.
Friday's sharp selloff in U.S. Treasuries – with the 10-year yield suffering its biggest one-day rise in nearly two years, Reuters data showed – accelerated losses that started in May over the uncertainty of the Fed's $85 billion a month bond-buying programme.
Yields on 10-year U.S. Treasuries, which move opposite to price, were at 2.6924%, turning lower after climbing to a nearly two-year high of 2.755% in Asian trade. They jumped 23.3 basis points to 2.736% on Friday, driving up U.S. dollar borrowing costs.
"The money in the market is very short term right now. Most investors have given up hope for any stimulus from Beijing, but now it seems they could be rolling out stricter ground rules to aid the restructuring of the economy," said Jackson Wong, vice-president for equity sales at Tanrich Securities in Hong Kong.
MANIC MONDAY
Shares in MSCI's Asia-Pacific ex-Japan index shed 1.8% to a two-week low, while Chinese equities lost 2.2% and Hong Kong's Hang Seng Index dropped 2.1%.
China's resolve to overhaul its economy for long-term improvement will be tested this month if a slew of data shows growth is grinding towards a 23-year low, as expected.
The median forecast of 21 economists surveyed by Reuters show China's economy likely expanded 7.5% in April-June from a year ago, slowing from the previous three months as weak demand dented factory output and investment growth.
The CSI300 index has lost nearly 14% so far this year, while the MSCI Asian gauge is down 10%.
The weakness in Chinese markets dragged Tokyo's Nikkei average down 1.4%. Earlier, the Japanese benchmark climbed as much as 1.3% to a six-week high.
DOLLAR HIGH
The dollar hit a six-week high of 101.54 yen after gaining 1.2% on Friday, its biggest one-day rise in a month.
Against a basket of major currencies, the dollar advanced 1.6% to a three-year high.
The euro dipped 0.1% to $1.2820, not far off a seven-week low of $1.2806. It dropped 1.4% versus the dollar in the previous two sessions on the U.S. jobs data and the European Central Bank's dovish policy guidance.
Brent crude prices added 0.3% to $108 a barrel, extending Friday's 2.1% rise on the strong U.S. data and concerns over Egypt's unrest increasing instability in the Middle East.
Copper prices eased 0.2% to stay below $6,800 a tonne after shedding 2.3% in the previous session as the dollar firmed, while gold eased 0.2%, extending Friday's 2% decline.
