Stocks upbeat as Fed rate hike bets recede

Stocks opened the week on an optimistic note on Monday, while bonds remained stable, as investors revised their expectations for the Federal Reserve's tightening policy following weaker-than-anticipated US employment data. The subdued trading activity in Asia during the holiday periods in China, South Korea, and New South Wales, Australia, allowed Wall Street's performance on Friday to guide market movements.

September's US job growth fell short of predictions, and the nonfarm payrolls for the preceding two months were revised downward significantly, effectively eliminating the likelihood of another rate hike this month. Jose Torres, a senior economist at Interactive Brokers, stated that the revised data indicated that the economy had lost jobs in two out of the nine months, making it improbable for the Fed to increase rates by 100 basis points.

Consequently, the chance of a rate hike this month fell from 64% to just 22%, according to the CME FedWatch tool. The possibility of a Fed pause this month spurred a rise in Japan's Nikkei, Australian shares, and MSCI's index of Asia-Pacific shares outside Japan. Nasdaq and S&P 500 futures experienced slight gains, while EUROSTOXX 50 futures and FTSE futures also saw marginal increases.

In Brazil, the market anticipation of a presidential runoff election between Brazilian Senator Flavio Bolsonaro and President Luiz Inacio Lula da Silva is expected to boost local markets later in the day. The recent downturn in global bond prices paused on Monday, with 10-year US Treasury yields easing to 5.2643% and two-year yields settling at 4.8143%.

Although yields dipped marginally after the US jobs data, they rose on Friday as the report did not eliminate the possibility of additional Fed rate hikes. Despite the drop in yields, they remain near multi-year peaks due to deteriorating government finances, excessive issuance, and heightened energy costs. Cedric Lam, a senior investment strategist at Standard Chartered, noted that recent US data has revealed softer-than-expected inflation, but technical factors might temporarily suppress further declines in bond yields due to forced selling by hedge funds and real estate investment trusts.

Nonetheless, Standard Chartered anticipates an opportunistic bullish outlook on US 10-year government bonds. In commodities, oil prices remained robust following Yemen's Iran-backed Houthis' reported launch of ballistic missiles and drones targeting Saudi Aramco facilities in Riyadh and Khurais. Brent crude futures were stable at US$102.20 per barrel, while US crude was at US$90.75 a barrel. Gold prices experienced a 0.3% increase, reaching US$4,154.32 an ounce.