Asian Stocks Slip as Rate-Cut Bets Ease; Key Inflation Readings Awaited

Surprise Jump in U.S. Nonfarm Payrolls Causes Asian Stocks to Fall

Most Asian stocks fell on Monday after a surprise jump in U.S. nonfarm payrolls saw markets rethink expectations for early interest rate cuts. Focus is now turning to a string of key inflation readings this week.

Regional Stocks and U.S. Stock Futures Reaction

Regional stocks took a weak lead-in from Wall Street after higher-than-expected data for December spurred further trimming in bets that the Federal Reserve will cut interest rates by as soon as March 2024. U.S. stock futures were largely flat in Asian trade on Monday.

Market Holiday in Japan and Impact on Regional Trading Volumes

Regional trading volumes were somewhat dulled by a market holiday in Japan, with futures for the moving little. Focus was now on readings for December, due on Tuesday.

Devastating Earthquake in Central Japan and Corresponding Impact

A devastating earthquake in central Japan also rattled sentiment towards Japanese markets, with spending and rebuilding efforts in the wake of the damage expected to further delay the Bank of Japan’s plans to begin tightening its ultra-doivsh policy.

Broader Asian Indexes and the Impact of Anticipated Readings

Broader Asian indexes kept to a tight range. Australia’s fell slightly before, and readings due later this week. China’s and SSEC indexes fell 0.7% and 0.8%, respectively, extending their new year’s losses as sentiment towards the country remained weak. Hong Kong’s index slid 1.1%, with mainland stocks acting as a major drag. South Korea’s was flat before a Bank of Korea interest rate decision later this week.

Speculations and Sentiments in Asian Markets

Asian markets had fallen in their first week of trading in 2024, amid growing doubts that the Fed will trim interest rates by as soon as March. Broader sentiment towards risk-driven assets was also held back by persistent concerns over the conflict in the Middle East.

Markets Face Inflation Test This Week

In addition to inflation reports from several major Asian economies, focus this week is also on U.S. for December, due on Thursday. The reading is expected to show a slight pick-up in U.S. inflation, with the CPI index set to remain well above the Fed’s 2% annual target.

Insights into U.S. Inflation

The inflation reading also comes just a week after nonfarm payrolls data pointed to little cooling in the labor market- which analysts at ING said gave the Fed less impetus to begin aggressively loosening policy, and that they expected any rate cuts to begin only by May. The showed traders pricing in a nearly 63% chance of a 25 basis point rate cut in March, down from the 73.4% chance seen a week earlier.

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