Asian stocks slump as traders temper rate cut bets

SINGAPORE — Asian shares eased on Monday and the dollar was firm after a robust US jobs report dashed expectations of a near-term interest rate cut from the US Federal Reserve, while stocks in China were volatile as investor sentiment remained shaky.

Oil prices surged following fresh strikes on Iran-aligned factions in Iraq, Syria and Yemen by the United States, with rising tension in the Middle East keeping risk appetite in check.

MSCI’s broadest index of AsiaPacific shares outside Japan fell 0.21% having dropped more than 1% earlier in the session.

European bourses looked set for a muted open, with Eurostoxx 50 futures down 0.09%, German DAX futures down 0.19%, and FTSE futures up 0.07%.

The focus in Asia has been on slumping Chinese stocks as investor sentiment remains rockbottom on lack of policy support and broad stimulus.

China’s securities regulator vowed to prevent abnormal market fluctuation on Sunday, but announced no specific measures.

China’s blue-chip index was up 1% on Monday afternoon after dropping 2% earlier in the session, having touched a fresh fiveyear low last week. Hong Kong’s Hang Seng Index was up 0.5%.

State-backed investors — dubbed the “national team,” have stepped up buying blue-chip funds to support the market in recent weeks, but so far have failed to arrest a slump.

Global markets have been focused on the timing of when the Fed would start cutting rates since the central bank surprised markets with its dovish tilt in December.

Traders initially priced in March as the starting point of the central bank’s easing cycle but a slate of strong economic data along with resistance from central bankers have led to investors scaling back their bets on an early rate cut.

Markets are currently pricing in an 80% chance of the Fed standing pat on rates in March, compared with a 33% chance at the start of the year, the CME FedWatch tool showed. Traders are now pricing in just below 120 basis points (bps) of cuts this year.

Data on Friday showed US job growth accelerated in January and wages increased by the most in nearly two years, signs of persistent strength in the labor market that could push the Fed to start its easing cycle a bit later in the year than markets anticipated.

Fed Chairman Jerome Powell said the US central bank can be “prudent” in deciding when to cut interest rates, with a strong economy allowing central bankers time to build confidence inflation will continue falling.

“We have to balance the risk of moving too soon... or too late,” he said in an interview with CBS news show 60 Minutes that aired Sunday evening in the United States.

The strong payrolls report pushed Treasury yields higher, with the yield on 10-year Treasury notes at 4.066%. Other regional bond yields took the cue and were higher on Monday, with yields on Australia’s 10-year bond and South Korea’s 10-year Treasury bond rising 11 bps.

The dollar index, which measures the US currency against six major rivals, scaled a fresh eightweek peak of 104.18, pinning the Japanese yen near a two-month low.