Asia Stocks Fall as Pound’s Flash Crash Supports Yen, Treasuries 

The MSCI Asia Pacific Index pared its weekly advance as futures on the U.K.’s FTSE 100 Index rallied. The pound tumbled as much as 6.1 percent versus the greenback, its biggest intra-day slide since Brexit, before recovering most of the loss amid speculation automated trades may have been a factor. The yen and the dollar were the best-performing major currencies, advancing as benchmark U.S. Treasuries gained for the first time in more than a week. Oil held above $50 a barrel, trading near a four-month high.

Sterling’s fall was reminiscent of June 24, when the outcome of Britain’s vote to leave the European Union sent shockwaves through financial markets. wiping more than $2.5 trillion off the value of global equities in a single day. The renewed volatility comes at a time when expectations for a U.S. interest-rate hike are building, with a report on Thursday having shown that jobless claims in the U.S. slumped last week to the second-lowest level in four decades. The more closely watched payrolls data is coming on Friday.

“Sterling’s crash seems to have affected sentiment across Asia, with markets trading lower,” said Margaret Yang, an analyst at CMC Markets in Singapore. “Traders are going to be cautious ahead of the non-farm payrolls tonight and the second U.S. presidential debate.”

The debate between Hillary Clinton and Donald Trump takes place on Sunday night in St. Louis, ahead of market holidays the following day in the U.S., Japan and Hong Kong. Financial markets in China will reopen on Monday following a weeklong break in which the yuan weakened in offshore trading.

Fed officials set to speak Friday include Cleveland Fed President Loretta Mester, who said this week that the case for a rate increase would still be “compelling” when the next policy review concludes on Nov. 2. Fed Vice Chairman Stanley Fischer, Governor Lael Brainard and Kansas City Fed President Esther George are all scheduled to talk in Washington. European Central Bank Executive Board member Peter Praet will also be delivering remarks in the U.S. capital, where the International Monetary Fund and the World Bank are holding an annual meeting.

Stocks

The MSCI Asia Pacific Index fell 0.4 percent as of 2:40 p.m. Tokyo time, trimming its weekly advance to 0.3 percent. Benchmarks declined across the region, with New Zealand’s S&P/NZX 50 Index slipping to its lowest since July and Hong Kong’s Hang Seng Index retreating from a four-week high.

Samsung Electronics Co. rose to a fresh record in Seoul after reporting a higher quarterly operating profit than analysts forecast. Seven & i Holdings Co. dropped more than 4 percent after the Japanese retailer unveiled a restructuring plan that involves shutting some department stores.

Futures on the U.K.’s FTSE 100 Index rallied 0.7 percent. The pound’s drop will help boost the earnings of British companies that have overseas income. S&P 500 Index contracts slipped 0.2 percent. Friday’s payrolls report is forecast to show the U.S. added about 172,000 jobs in September, indicating hiring is settling into a more sustained pace after robust advances last year.

“The pound’s sharp drop spiced up what could have been a boring day as investors awaited the U.S. jobs report,” said Nicholas Teo, a market strategist at KGI Securities in Singapore. “We weren’t expecting any big bets today until the payrolls data comes out.”

Currencies

Sterling was down 1.3 percent versus the dollar, the biggest loss among major currencies. Traders questioned whether computer-driven orders had triggered the plunge, exacerbated by a lack of liquidity in early Asian hours, while some saw the possibility of human error, or a so-called “fat finger.” Others pointed to a Financial Times article citing French President Francois Hollande as saying the U.K. must suffer the consequences of leaving the EU.

“It looks like it was a algorithm-driven flash crash triggered by a Financial Times article based on French President Hollande’s speech on Brexit,” said Angus Nicholson, a markets analyst in Melbourne at IG Ltd. “Given low volumes in the Asian session, it would have forced other algorithms to join in and magnify the fall.”

The yen strengthened 0.1 percent and the Bloomberg Dollar Spot Index advanced for a fifth day, its longest winning streak in five months. The market-implied probability of a Fed rate hike by year-end has risen to 64 percent, while the chance of an increase in November has climbed to 24 percent from 17 percent at the start of this week.

The yuan fell 0.1 percent in offshore trading and was headed for its weakest close in six years, exacerbating depreciation pressures on the domestic exchange rate when trading resumes in Shanghai on Monday. The overseas rate has dropped 0.6 percent this week, widening its discount to the onshore spot price to the most since June. China’s central bank on Friday reported an $18.8 billion decrease in the nation’s foreign-exchange reserves for September, spurring speculation it sold dollars to support the local currency.

Commodities

Gold held near a four-month low. It tumbled 4.7 percent this week, its biggest loss of the year, as growing expectations for a Fed rate rise boosted the greenback.

Dollar strength also weighed on base metals, with copper, nickel and lead all having dropped more than 2 percent this week. Copper prices are likely to “remain subdued” over the rest of the year, as rising supply continues to outpace global consumption, Australia’s Department of Industry, Innovation and Science said Friday in a report.

Crude oil was little changed Friday at $50.51 a barrel in New York, having gained 4.5 percent this week. U.S. stockpiles shrank below 500 million barrels last week for the first time since January and the Organization of Petroleum Exporting Countries pledged to cut production. The group will be joined by non-OPEC Russia for talks in Istanbul next week regarding the implementation of output reductions.

Bonds

The yield on U.S. Treasuries due in a decade declined by one basis point to 1.73 percent, retreating from the highest level since June. It’s still up 14 basis points for the week, a move that spurred jumps of more than 20 basis points in yields on similar-maturity sovereign debt in Australia and New Zealand.

“If the payrolls number comes out around 200,000 or so, just slightly above where people are expecting, there could be a little bit of a selloff” in Treasuries, said John Gorman, the Tokyo-based head of non-yen rates trading for Asia and the Pacific at Nomura Holdings Inc., a primary dealer in Japan and the U.S. “The Fed needs to be a little bit more concerned about what’s going on in the U.S. rather than externally, and the economy is improving. I think they’ll probably be looking to hike in December.”