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Asia shares drop as traders lower rate cut bets

Shares drop

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 1% at the start of the week

Asian shares dropped on Monday and the dollar jumped after a strong U.S. jobs report dashed any expectations of a near-term interest rate cut from the Fed, while stocks in China stocks stayed on the back foot on weak sentiment.

Oil prices were tentative amid escalating tensions in the Middle East, keeping risk appetite in check.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 1% at the start of the week. The index is 4.5% lower so far in the year. Japan’s Nikkei gained 0.5%.

The focus in Asia has been on slumping Chinese stocks as investor sentiment remains low. China’s securities regulator vowed to prevent abnormal market fluctuation on Sunday, but announced no specific measures.

The watchdog also said it will clampdown on ill-intended short-selling, attract more investment by long-term capital, and earnestly listen to investors’ voices.

China’s blue-chip index eased 0.12%, having hit a new five-year low last week. Hong Kong’s Hang Seng Index dropped 0.5% in early trading.

The frequency of these statements may suggest market stabilisation is becoming more important for policymakers, said ING economists in a client note.

Formalisation of a potential market stabilisation fund could provide a short-term boost for markets but investor sentiment remains downbeat for now, awaiting improvement in fundamentals, they added.

Data on Friday showed U.S. job growth accelerated in January and wages rose by the most in around two years, signs of persistent strength in the labour market that could push the Federal Reserve to start its easing cycle a bit later in the year than markets expected.

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

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