Stocks made muted gains and traders were wary on Tuesday, following a slide in cryptocurrencies and a global bond selloff triggered by a looming interest rate hike in Japan.
S&P 500 futures were steady in early trade, after falls on Wall Street overnight, while Japanese government bonds remained under pressure ahead of a 10-year auction after a weeks-long tumble on concern about the nation's fiscal outlook.
Ten-year JGB yields ticked up 1.5 basis points to a 17-year top of 1.88% in morning trade. Bitcoin, which has been a talisman for sentiment, had an unsettling 5.2% slump on Monday and at $87,000 is down 30% from an October peak.
"The mood (in cryptocurrencies) is ranging between fearful and resigned," said Jehan Chu founder at Kenetic Capital, a blockchain venture capital firm, with the latest drop catching investors by surprise.
"The next couple months are crucial but even the most bullish may be settling in to hibernate for the winter."
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.6% while Tokyo's Nikkei crept 0.5% higher after logging a sharp drop on Monday.
Japan to hike, Fed to cut
Expectations that Japan will hike interest rates later this month had surged on Monday when Bank of Japan Governor Kazuo Ueda laid the groundwork for tightening policy.
Ten-year Japanese government bond yields shot six bps higher and perhaps on the view that could lure home some of Japan's vast international investments, traders sold global bonds and pushed ten-year Treasury yields up 7.7 bps to 4.08%.
The yen caught a boost and has stood firmest in foreign exchange markets over the past 24 hours, holding at 155.75 per dollar on Tuesday.
The move helped hoist the euro briefly above $1.165 and left the dollar on the back foot more broadly. It traded at $1.16 while markets waited on eurozone inflation data due later in the session.
Some investors, however, are starting to expect a more durable turn lower for the greenback as the US shapes to cut interest rates further and faster than many peers.
Data on Monday supported expectations for a December rate cut by the Federal Reserve, with manufacturing contracting for a ninth straight month in November - though consumers did beat analyst expectations with a $23.6 billion online shopping spree.
"The U.S. data remains decent enough – but the rest of world is on a firmer footing," said Deutsche Bank strategist Tim Baker, who sees scope for the dollar to fall towards year end.
"December has easily been the worst month for the dollar in the past decade. It's fallen 80% of the time, and by a median of more than 1%."
Gold hung on to recent gains at just above $4,200 an ounce. Oil prices had also climbed following drone attacks on Russian supply and Brent crude futures were eight cents higher at $63.26 a barrel on Tuesday.
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