Asian stocks slump as traders dial back rate cut bets

A display of stock information is seen in front of buildings in Lujiazui financial district that are shrouded in fog amid an orange alert for heavy fog in Shanghai, China Jan 31, 2024. REUTERS/Xihao Jiang/File photo

SINGAPORE  —Asian shares fell on Monday and the dollar climbed after a robust U.S. jobs report dashed any expectations of a near-term interest rate cut from the Federal Reserve, while stocks in China stocks remained on the back foot on weak sentiment.

Oil prices were tentative following fresh strikes in Tehran-aligned factions in Iraq, Syria and Yemen over the last two days by the United States, with rising tension in the Middle East keeping risk appetite in check.

MSCI’s broadest index of Asia-Pacific shares outside Japan slid 1 percent at the start of the week. The index is down 4.5 percent so far in the year. Japan’s Nikkei rose 0.5 percent .

The focus in Asia has been on slumping Chinese stocks as investor sentiment remains rock-bottom. China’s securities regulator vowed to prevent abnormal market fluctuation on Sunday, but announced no specific measures.

The watchdog also said it will crack down on ill-intended short-selling, attract more investment by long-term capital, and earnestly listen to investors’ voices.

READ: China weighs stock market rescue package backed by $278B -Bloomberg

China’s blue-chip index eased 0.12 percent, having touched a fresh five-year low last week. Hong Kong’s Hang Seng Index fell 0.5 percent in early trading.

“The frequency of these statements may indicate market stabilization is becoming more important for policymakers,” said ING economists in a client note.

“Formalization of a potential market stabilization fund could provide a short-term boost for markets but investor sentiment remains downbeat for now, awaiting improvement in fundamentals.”

Data on Friday showed U.S. job growth accelerated in January and wages increased by the most in nearly two years, signs of persistent strength in the labor market that could push the Fed to start its easing cycle a bit later in the year than markets anticipated.

The U.S. central bank can be “prudent” in deciding when to cut interest rates, with a strong economy allowing central bankers time to build confidence inflation will continue falling, Fed Chairman Jerome Powell told the CBS news show “60 Minutes”.

“We have to balance the risk of moving too soon … or too late,” he said in an interview that aired Sunday evening in the United States.

READ: Powell says Fed can be ‘prudent’ in weighing rate cuts

Markets are currently pricing in an 80 percent chance of the Fed standing pat on rates in March, compared with a 33 percent chance at the start of the year, the CME FedWatch tool showed. Traders are now pricing in just below 120 basis points of cuts this year.

Even before the labor market data, the Federal Open Market Committee (FOMC) meeting last week signaled little appetite for early or aggressive cuts, analysts at Barclays said in a note.

“Such payrolls do increase the risk that the FOMC will need longer to gain sufficient confidence that disinflation is sustainable, perhaps until June, or that it will deliver fewer cuts during the rest of the year.”

The strong payrolls report pushed Treasury yields higher, with the yield on 10-year Treasury notes at 4.077 percent in Asian hours. Other regional bond yields took the cue and were higher on Monday, with yields on Australia’s 10-year bond and South Korea’s 10-year Treasury bond rising 11 basis points.

The dollar index, which measures the U.S. currency against six major rivals, scaled a fresh eight-week peak of 104.18, pinning the Japanese yen near a two-month low. The yen was last at 148.59 per dollar.

U.S. crude rose 0.21 percent to $72.43 a barrel and Brent was at $77.58, up 0.32 percent to start the week as escalating geopolitical tension and its repercussions on oil supply boosted prices.

Spot gold dropped 0.2 percent to $2,035.09 an ounce. U.S. gold futures fell 0.10 percent to $2,034.00 an ounce.