Asian equity markets saw a strong rally on Monday, with Japan’s Nikkei 225 (.N225) leading the charge, rising 2%, as robust US labor market data boosted investor sentiment and pared back expectations of significant rate cuts by the Federal Reserve.
The US non-farm payrolls report, released on Friday, revealed that the US economy added the most jobs in six months during September, surprising markets and easing fears of an imminent recession.
This sparked a rise in short-term US Treasury yields and sent stocks across the region higher.
Nikkei rallies amid softer yen
Japan’s Nikkei surged by 2% as of 0015 GMT, gaining momentum from the softer yen, which boosted the outlook for exporters. Australia’s ASX 200 (.AXJO) edged up 0.12%, while South Korea’s Kospi (.KS11) gained 0.29%.
Meanwhile, Hong Kong’s Hang Seng index (.HSI) remained closed, and mainland Chinese markets are set to reopen on Tuesday following the Golden Week holiday.
MSCI’s broadest index of Asia-Pacific shares (.MIAP00000PUS) rose by 0.4%, as investors across the region reacted to the positive US economic news.
US Dow futures pointed slightly higher, with a 0.08% gain, after the cash index hit a record close on Friday following the payroll data.
“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 told Reuters.
There’s also seemingly a revival of the US economic exceptionalism trade.
Dollar hits seven-week high against yen
The US dollar reached a seven-week high against the yen, climbing to 149.10 yen for the first time since August 16, before trading slightly lower at 148.87 yen.
Japan’s top currency diplomat, Atsushi Mimura, indicated on Monday that officials were closely monitoring foreign exchange movements, particularly in light of speculative trading.
Meanwhile, the euro slipped 0.07% to $1.0971, moving closer to Friday’s seven-week low of $1.09515.
The strong labor data also led to a reassessment of interest rate expectations.
Prior to the report, markets had priced in a more than 50% chance of a 50-basis-point rate cut at the Federal Reserve’s November meeting.
However, those bets have since disappeared, with traders now assigning a 95% probability of a smaller, quarter-point cut, and some even suggesting rates may remain unchanged, according to CME Group’s FedWatch Tool.
On the bond market, the two-year US Treasury yield rose by 1.7 basis points to 3.9488%, its highest in over a month.
Oil prices ease after surge
In the commodities market, oil prices eased from a one-month peak, despite escalating military action in the Middle East.
Israeli airstrikes on Lebanon and the Gaza Strip have heightened tensions, with Monday marking a year since the Hamas attack that triggered the ongoing conflict.
Brent crude futures dropped by 65 cents to $77.40 per barrel, while US West Texas Intermediate crude futures fell by 53 cents to $73.85 per barrel.
This pullback comes after oil posted its biggest weekly gain in more than a year due to fears of a wider regional conflict.
Gold prices dipped slightly, falling 0.1% to $2,649.29 per ounce, but remained close to last month’s record peak of $2,685.42.
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