Asian markets on Monday get their first chance to react to the global market fallout from Friday’s U.S. employment report, which saw the biggest one-day rise in Treasury yields and the dollar in two months.
Traders also pared back Fed rate cut expectations – the probability of a pre-election rate cut is now no more than 50-50, and two full rate cuts are no longer priced in for this year.
This counters some of the dovish momentum that had been building earlier last week when the Bank of Canada and European Central Bank cut rates, and the dollar and Treasury yields touched two-month lows.
Indeed, the S&P 500, Nasdaq, and the MSCI World index all hit record highs last week before Friday’s reversal, and Asian stocks still managed to rise nearly 3% for their fifth weekly rise out of the last seven.
But rising U.S. bond yields and an appreciating dollar does not bode well for investors’ appetite for risk, so Friday’s market moves could put Asian assets on the defensive at the open on Monday. Investors and traders in Asia may already be inclined to reduce risk exposure ahead of two major monetary policy decisions this week from the Federal Reserve and Bank of Japan.
