* Asia stocks slip as stagflation weighs on sentiment
* Oil, soybean prices hit fresh record highs
* Energy shock has long-term consequences for Asia
By Kevin Plumberg
HONG KONG, July 4 (Reuters) - Asian stocks slipped on
Friday as record high crude oil prices threatened to jeopardise
earnings and curb consumer spending, with the uncertain
economic outlook following U.S. jobs data boosting safe-haven
government bonds. This week has been punctuated by
stagflation fears and deteriorating sentiment after the Dow
Jones industrial average slipped into a bear market this week,
down more than 20 percent from October highs, joining Asia
markets and pushing investors into safety-first mode.
The unfavourable combination of feeble growth and high
inflation known as stagflation has caused many analysts to
adjust downward their expectations for regional equities and
investors to pull back on their willingness to take risks for
higher returns.
"Asia is suffering from its own inflationary bout. That is
the most important feature right now because it is forcing
monetary policy to be tighter at a time when headwinds from the
U.S. are increasing," said Sanjay Mathur, an economist with
Royal Bank of Scotland in Singapore.
"All this contributes to the rise in the risk premium in
Asia assets."
Japan's Nikkei share average fell for a 12th day in a row,
after posting their longest string of losses in 54 years,
dragged down by technology firms such as Tokyo Electron
<8035.T> and Advantest Corp <6857.T>.
The pan-Asia MSCI index <.MIAS00000PUS> fell 0.2 percent,
adding to the year's 16.5 percent decline.
Asia-Pacific shares traded outside of Japan were largely
steady, according to an MSCI index, but were hovering around a
10-month low.
Hong Kong's Hang Seng <> bucked the broad declining
trend and rose 0.9 percent, with Industrial & Commercial Bank
of China <1398.HK> among the biggest boosts to the index after
China's biggest bank issued a positive earnings outlook.
[]
Australia's benchmark <> rose 0.8 percent.
U.S. markets will be closed on Friday because of a public
holiday.
U.S. jobs data released on Thursday showed employers cut
workers for a sixth straight month in June for the longest such
streak since 2002 and the country's vast service sector
unexpectedly contracted, underscoring the economy's frailty.
[]
ENERGY SHOCK
Japanese government bond yields, which move in the opposite
direction of prices, slipped after the European Central Bank
raised its benchmark interest rate as expected but gave little
indication that more increases were to come.
The 10-year yield fell 3.5 basis points to 1.635 percent,
having fallen about 25 basis points since mid June when global
equity markets tumbled.
Short-dated U.S. Treasury yields dropped on Thursday after
U.S. payrolls data showed the job market contracted for the
sixth consecutive month and private sector job losses amounted
to 91.000 in June.
Other indications have shown that investors in Asia are
demanding a higher premium to hold assets in a growingly
risk-averse environment.
For example, the iTRAXX Asia ex-Japan high-yield index
<ITAHY5UA=ITX> has risen to a three-month high, climbing nearly
100 basis points in the last month.
Compounding inflation fears, oil prices rose to a record
high of $145.85 a barrel, up more than 50 percent this year,
and the price of soybeans, a key import for China, hit a record
high for the fourth time this week.
The central bank of the Philippines on Friday confirmed
that the south-east Asian economy has inflation in
double-digits, joining Vietnam and India.
Stephen Jen, head of currency strategy with Morgan Stanley in
London, said that high energy prices are a "game changer" for
Asia and will have long-term consequences for the region and
particularly for China.
"While many investors and analysts are concerned about
inflation containment and the effects of monetary reactions,
higher price levels of energy, not just inflation, will hurt
Asia," he said in a note to clients.
"In other words, even if oil/energy prices stabilise now,
this will be a very significant shock to Asia, especially
China."
The euro edged up 0.1 percent to $1.5711 after on Thursday
rising as high as $1.5893, the highest since late April and
edging closer to an all-time peak of $1.6020 that was also hit
in April. The dollar slipped 01. percent to 106.65 yen <JPY=>.
