Stocks upbeat, dollar wobbles as Fed hike bets recede
SINGAPORE: Stocks were off to a strong start on Monday while the dollar edged lower and bonds steadied , as investors trimmed bets on an aggressive policy tightening cycle by the Federal Reserve following cooler-than-expected US jobs data. Trading was thin in Asia with holidays in China, South Korea and Australia’s New South Wales, leaving markets to take their cue from Wall Street’s moves on…
On Monday, the stock market opened strongly as investors adjusted their expectations for the Federal Reserve's policy tightening cycle in response to weaker-than-anticipated US jobs data. Trading was light in Asia due to holidays in China, South Korea and Australia's New South Wales, with market movements following Wall Street's lead from the previous day.
US job growth slowed more than expected in September, and the nonfarm payrolls count for the previous two months was revised downwards, indicating a potential slowdown in employment growth. This led to a significant drop in the probability of a rate hike this month, from 64% to just 22%, according to the CME FedWatch tool.
The expectation of a Fed pause this month helped Japan's Nikkei rise by 2%, while Australian stocks added 0.5% and MSCI's Asia-Pacific index outside Japan gained 0.15%. Nasdaq and S&P 500 futures also showed gains of 0.3% and 0.1%, respectively. In Brazil, markets were expected to rise later in the day after it became clear that Brazilian Senator Flavio Bolsonaro would face President Luiz Inacio Lula da Silva in the presidential election runoff.
Bonds initially experienced a selloff, but trading resumed on Monday as investors reassessed the impact of the US jobs data. The benchmark 10-year US Treasury yield fell slightly to 5.2643%, while the two-year yield stood at 4.8143%. Despite the downward revision in expectations for Fed rate hikes, yields remained near multi-year highs due to concerns about government finances, increased issuance, and higher energy costs.
Analysts believe this selloff will not be prolonged, and initiated a bullish outlook on US 10-year government bonds.
The US dollar faced pressure due to reduced expectations for Fed rate hikes, with the euro recovering from a 17-month low and the British pound strengthening. The greenback also declined slightly against the Japanese yen. In commodities, oil prices remained elevated following missile and drone attacks by Iran-backed Houthis on Saudi Aramco sites in Riyadh and the Khurais area, with Brent crude futures remaining steady at $102.20 per barrel and US crude at $90.75 a barrel.
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