Asian Markets Face Decline as US Jobs Report Dashes Rate Cut Expectations

On Monday, Asian markets experienced a downturn, extending the gloomy start to the year witnessed last week. This setback came in the wake of the US jobs report, which surpassed expectations and further dimmed hopes for an early interest rate cut, according to a report by APP.

The highly anticipated non-farm payrolls data from Friday highlighted the resilience of the world's leading economy, despite interest rates reaching a two-decade high and inflation persistently exceeding the Federal Reserve's target. This report dealt a blow to expectations that the central bank would soon begin the process of normalizing monetary policy in the coming months.

The conclusion of 2023 witnessed a surge in equities as traders anticipated a series of rate reductions in the upcoming year, given the decline in inflation and a softening labor market. However, the release of minutes from the Fed's December meeting last week revealed that decision-makers were inclined to keep rates elevated for an extended period to ensure control over prices.

While policymakers have signaled 75 basis points of cuts for this year, market expectations have been even higher, with up to 150 points priced in, potentially leaving investors facing disappointment.

Barclays economists, including Christian Keller, noted, "The first week of 2024 brought contradictory data signals," citing solid US jobs growth, cautious Fed minutes, and a resilient US economy as factors raising doubts about the markets' aggressive Fed rate-cut expectations.

Despite the uncertainty, a notable slowdown in the key services sector provided some relief for investors, hinting at an economic slowdown that could afford the Fed flexibility.

Bloomberg reported that swaps traders were still anticipating around 140 basis points of easing in the current year, with roughly a two-thirds chance of a March move.