Asian stocks: Monday saw a decline in Asian stocks as the dollar strengthened following a strong U.S. jobs report that dispelled any hopes of a Federal Reserve interest rate cut in the near future. Meanwhile, weak sentiment continued to undermine Chinese stock prices. Following recent US strikes against groups in Iraq, Syria, and Yemen that support Tehran, oil prices were cautious as growing Middle East tension restrained investors’ appetite for risk.
The start of the week saw a 1% decline in MSCI’s broadest index of Asia-Pacific shares outside of Japan. This year, the index has decreased by 4.5% already. Nikkei soared 0.5% in Japan. As investor sentiment remains extremely low, the focus in Asia has been on China’s collapsing stock market. Although it made no specific announcements on Sunday, China’s securities regulator pledged to stop unusual market fluctuations.
Additionally, the watchdog declared that it will take strong action against malicious short sellers, encourage more long-term capital investments, and pay close attention to the opinions of investors. After hitting a new five-year low last week, China’s blue-chip index decreased by 0.12%. Early trading saw a 0.5% decline in Hong Kong’s Hang Seng Index. According to ING economists in a client note, “the frequency of these statements may indicate market stabilization is becoming more important for policymakers.” “The establishment of a potential market stabilization fund may give markets a temporary lift, but for the time being, investor sentiment is still negative as they wait for improvements in the fundamentals.”
Data released on Friday revealed that wages rose by the most in almost two years and that job growth in the United States picked up speed in January. These indicators of the labor market’s ongoing strength may encourage the Federal Reserve to begin its easing cycle later in the year than the markets had predicted.Fed Chairman Jerome Powell told the CBS news program “60 Minutes” that the US central bank can be “prudent” in when it decides to lower interest rates because a robust economy gives central bankers time to develop confidence that inflation will continue to decline.
In an interview that aired Sunday night in the US, he stated, “We have to balance the risk of moving too soon… or too late.”According to the CME FedWatch tool, markets are currently pricing in an 80% chance of the Fed holding steady on rates in March, up from a 33% chance at the beginning of the year. Traders are currently pricing in reductions of less than 120 basis points for this year.
Analysts at Barclays noted in a note that the Federal Open Market Committee (FOMC) meeting last week indicated little appetite for early or aggressive cuts even before the labor market data. “Such payrolls do raise the possibility that the FOMC may take until June to become sufficiently confident in the sustainability of the disinflation or that it will make fewer cuts in the remaining months of the year.”
The 10-year Treasury note yield hit 4.077% in Asian hours following a strong payrolls report that drove up Treasury yields. Several other regional bond rates followed suit on Monday, rising 11 basis points for the 10-year Treasury bond issued in South Korea and the 10-year bond issued in Australia. The Japanese yen was almost two months away from a two-month low as the dollar index, which compares the US dollar to six major competitors, reached a new eight-week high of 104.18. At 148.59 to the dollar, the yen was last seen.
