Asian stocks fell on Monday, while the dollar held near a 14-month high, after an unequivocal jobs report sent bond yields higher and testing high stock valuations, just as earnings season begins.
The jobs report’s impact on U.S. rate cut prospects also increased its stake for consumer price figures on Wednesday, where any increase in the core index above forecasts of 0.2% would threaten to close the door to relaxation.
The surge in oil prices, which reached four-month highs, has not helped matters, due to signs of weakening crude deliveries from Russia, following the strengthening of sanctions imposed by Washington on this country.
Markets have already reduced expectations for a Federal Reserve rate cut to just 27 basis points for the full year 2025, with the terminal level now seen to be around 4.0% from 3, 0% that many were hoping for this time last year.
“Given the strength of the data, we now expect the Fed to cut rates just once this year, by 25 basis points in June,” said Christian Keller, head of economic research at Barclays.
“We still expect the FOMC to taper in June, as we believe the economy will slow in the coming quarters and inflation will continue to fall in the first half of the year, before tariffs cause some strengthening of inflation in the second half of the year.”
At least five Fed officials are on the docket to speak this week and offer their reaction to the jobs surprise, with influential Fed Bank of New York President John Williams appearing Wednesday.
The hawkish shift in rates sent yields on the 10-year Treasury note to 14-month highs of 4.79%, and they traded as high as 4.764% in Asia.
Higher yields on risk-free bonds raise the discount bar for corporate profits and make debt relatively more attractive compared to stocks, cash, real estate and commodities.
They also increase borrowing costs for businesses and consumers, before tariffs proposed by President-elect Donald Trump inflate import prices.
That could test optimism around corporate earnings as the season kicks off with big banks on Wednesday, including Citigroup, Goldman Sachs and JPMorgan.
BEARS ARE INTERESTED IN THE POUND STERLING
Due to a public holiday in Japan, early trading was limited on Monday and MSCI’s broadest index of Asia-Pacific stocks outside Japan edged down 0.4%.
While the Nikkei was closed, futures traded lower at 38,770 versus a spot close of 39,190.
South Korean stocks fell 0.2%, with the political situation still in limbo as a Constitutional Court hearing begins Tuesday to decide whether impeached President Yoon Suk Yeol will be removed from office or restored to office. its functions.
In China, trade figures for December are due later on Monday, followed by data on gross domestic product, retail sales and industrial production on Friday.
S&P 500 and Nasdaq futures were both down 0.1%, following Friday’s pullback.
The inexorable rise in Treasury yields boosted the dollar overall and saw the euro fall for eight straight weeks to huddle at $1.0240, just above its lowest level since November 2022. [USD/]
The dollar was steady at 157.84 yen, although it pulled away from a six-month high of 158.88, following reports from the Bank of Japan that it may revise its inflation forecast upwards this year. month as a prelude to a further rise in interest rates.
Sterling was stuck near a 14-month low at $1.2202, with sentiment dampened by the recent rout in the gilt market on fears the Labor government will have to borrow more to fund its spending pledges. [GBP/]
British Finance Minister Rachel Reeves promised on Saturday that she would act to ensure the government’s tax rules are respected.
Gold prices hold steady at $2,688 per ounce, having shown surprising resilience in the face of a stronger dollar and higher bond yields. [GOL/]
Oil prices continued to rise on supply concerns, with Russia’s maritime exports hitting their lowest level since August 2023, even before the latest round of US sanctions. [O/R]
Brent rose $1.43 to $81.19 a barrel, while U.S. crude rose $1.50 to $78.07 a barrel.
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