Trading was thinned in Asia with Australia, China, Hong Kong and Taiwan out for public holidays, but MSCI’s broadest index of Asia-Pacific shares outside Japan still slid 0.33%
Asian stocks slipped on Monday as traders heavily pared back bets for Fed rate cuts this year given a still-tight U.S. labour market, while a snap election call in France sparked broader political concerns and weighed on the euro.
Trading was thinned in Asia with Australia, China, Hong Kong and Taiwan out for public holidays, but MSCI’s broadest index of Asia-Pacific shares outside Japan still slid 0.33%.
U.S. futures edged slightly higher, with S&P 500 futures and Nasdaq futures around 0.03% higher each, reversing marginal losses from earlier in the session.
The pause in the global risk rally came on the back of Friday’s nonfarm payrolls report, which showed the U.S. economy created far more jobs than expected in May and annual wage growth reaccelerated, underscoring the strength of the labour market.
Futures now show almost 36 bps worth of cuts priced in for the Federal Reserve, down from 50 basis points last week.
The latest developments come ahead of the Federal Reserve’s policy decision on Wednesday, with U.S. inflation numbers for May due just before that.
It is going to be very difficult for the Fed to continue forecasting three rate cuts this year, according to Rob Carnell, ING’s regional head of research for Asia-Pacific.
Quite a few of the Fed speakers are talking about the possibility of just one cut. While the most likely outcome is we’ll see the three move to two, it is possible we just get a move to one, he added.
U.S. Treasury yields likewise rose on Monday, reflecting the higher-for-longer U.S. rate expectations.
The two-year yield and benchmark 10-year yield each rose nearly two basis points to 4.8931% and 4.4512%, respectively.
Against the dollar, the yen dropped more than 0.2% to 157.09. The dollar index firmed to 105.29.
Japan’s Nikkei added 0.9%, helped by a weaker yen.
The Bank of Japan also holds its two-day monetary policy meeting this week and could offer fresh guidance on how it plans to scale back its massive bond purchases.
