Asian stock markets surged on Monday, and the U.S. dollar reached a fresh seven-week peak against the yen, driven by strong U.S. labor market data that eased concerns over a potential recession.
The unexpected strength of the U.S. economy reduced expectations of near-term rate cuts, fueling a sharp rise in U.S. Treasury yields.
U.S. Treasury yields continued their upward climb after Friday’s non-farm payrolls report revealed the largest job growth in six months. In September, the U.S. economy added more jobs than expected, alleviating fears of an economic downturn.
The 10-year U.S. Treasury yield touched 3.992% on Monday, the highest level since early August, while the two-year yield rose to 3.965%.
The rally in stocks was led by Japan’s Nikkei, which gained 2.28% by 0515 GMT, buoyed by a weaker yen.
Other regional markets followed suit, with Hong Kong’s Hang Seng rising 1.45%, Australia’s benchmark up 0.68%, and South Korea’s Kospi advancing 1.53%.
The broader MSCI index of Asia-Pacific shares climbed over 1%, reflecting widespread investor optimism. Mainland Chinese markets remained closed for the Golden Week holiday, resuming trade on Tuesday.
“The reaction in markets conveys what the key themes and risks for market participants are presently: economic growth, and its impact — for equities — on future earnings,” said Kyle Rodda, senior financial market analyst at Capital.com. He added, “There’s also seemingly a revival of the U.S. economic exceptionalism trade.”
In currency markets, the U.S. dollar climbed as high as 149.10 yen, a level not seen since mid-August, before easing to 148.49 yen after Atsushi Mimura, Japan’s top currency diplomat, announced that officials were closely monitoring currency movements.
He stressed that authorities were watching speculative trading “with a sense of urgency.” Meanwhile, the euro dipped 0.08% to $1.0966, inching toward its seven-week low of $1.09515.
The robust U.S. labor data also shifted expectations for the Federal Reserve’s upcoming policy meeting in November.
While there had been over a 50% chance of a 50-basis-point rate cut just a week earlier, those expectations have now been wiped out.
According to the CME Group’s FedWatch Tool, traders are now placing 96% odds on a smaller quarter-point cut, with a slight possibility that rates remain unchanged.
“All of a sudden, the idea of U.S. economic exceptionalism is back in vogue,” remarked Michael Brown, senior research strategist at Pepperstone.
He suggested that some market participants are even questioning whether the Fed will deliver two quarter-point cuts in its remaining meetings this year.
“The jobs report pointed to an unexpectedly strong employment situation, which should keep consumer spending underpinned, and leaves a soft landing still on the cards,” Brown explained.
However, he noted that he still anticipates 50 basis points of rate cuts by year-end despite the “frenzied nature of sentiment at the moment.”
The rally in bond yields also extended to regional markets, with Japan’s 10-year government bond yields reaching 0.915%, their highest since early August.
Meanwhile, gold prices fell 0.35% to $2,643 per ounce due to the dollar’s strength but remained near last month’s record peak of $2,685.42.
Oil prices eased from one-month highs, with Brent crude futures falling 35 cents to $77.70 a barrel and U.S. West Texas Intermediate crude declining 25 cents to $74.13.
Despite ongoing tensions in the Middle East, with Israel targeting locations in Lebanon and Gaza, crude prices retreated after posting their largest weekly gains in more than a year.
As the global markets continue to react to stronger-than-expected economic data, investor focus remains on the Federal Reserve’s next move and geopolitical risks in the Middle East.
Boluwatife Enome
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