Asian stock markets experienced a notable rally on Monday, driven by robust US labor market data that alleviated recession fears and led to a sharp decrease in expectations for a significant rate cut by the Federal Reserve.
The US dollar also reached a new seven-week high against the yen.
The encouraging US jobs report, which indicated that the economy added 254,000 jobs in September—marking the largest increase in six months—prompted traders to reconsider previous bets for a half-point rate cut in November. As a result, US Treasury yields surged to two-month highs.
Japan’s Nikkei index led the regional gains, soaring by 2.28% amid a weakening yen. Other major Asian markets followed suit, with Hong Kong’s Hang Seng index climbing 1.45%, Australia’s benchmark index increasing by 0.68%, and South Korea’s Kospi gaining 1.53%. Meanwhile, mainland Chinese stocks remained closed for the Golden Week holiday.
In the foreign exchange market, the dollar reached 149.10 yen, the highest level since mid-August, before trading at 148.49 yen. However, gains were moderated after Japan’s chief currency diplomat, Atsushi Mimura, noted that officials were closely monitoring currency fluctuations, particularly concerning speculative trading.
The euro saw a slight decline, falling 0.08% to $1.0966, while speculation surrounding the Federal Reserve’s upcoming policy decisions shifted dramatically. Prior to the jobs report, there had been over a 50% probability for a 50-basis-point rate cut at the Fed’s next meeting. However, following the positive labor data, traders have now assigned a 96% likelihood to a smaller quarter-point cut, with a slim chance that rates will remain unchanged.
Market analysts highlighted a renewed sentiment around the concept of US economic exceptionalism, suggesting that the positive employment report points to sustained consumer spending and the possibility of a “soft landing” for the economy. Despite this, some experts still anticipate a total of 50 basis points of rate cuts by year-end.
The yield on the 10-year US Treasury note reached 3.992%, the highest since early August, while the two-year yield rose to 3.965%. Consequently, regional bond yields increased, with Japanese government bond yields hitting their highest level since early August.
In commodities, gold prices dipped 0.35% to $2,643 an ounce amid the dollar’s strength, though they remained near last month’s record high. Crude oil prices also retreated from recent peaks, with Brent crude futures declining by 35 cents to $77.70 per barrel and US. West Texas Intermediate futures dropping 25 cents to $74.13.
As Japan’s stock market continues to benefit from the recent fluctuations in currency values, the Nikkei 225 futures indicated a potential gain of 3.3% at the start of trading. The combination of strong US employment figures and shifting market expectations is expected to keep Asian equities buoyed in the coming days.
