Stocks and bonds across Asia dropped following Friday’s strong U.S. payroll data, while the British pound extended its decline due to concerns over the UK’s strained public finances.
The MSCI Asia Pacific Index fell by up to 1.1%, marking its fourth consecutive day of losses. Major markets in Hong Kong, Taiwan, and South Korea led the declines. Despite China’s record export data, its stock market continued to slide, influenced by geopolitical tensions, particularly U.S. President-elect Donald Trump’s looming tariffs on Chinese goods.
Eugenia Victorino, Head of Asia Strategy at Skandinaviska Enskilda Banken, stated, “The market is adjusting its expectations of fewer rate cuts by the Federal Reserve, given the uncertainty surrounding U.S. policies.”
Oil prices surged to a four-month high as the U.S. imposed new sanctions on Russia’s oil industry, further exacerbating inflation concerns. Brent crude climbed above $81 per barrel, signaling potential challenges for central banks, especially the Fed, in maintaining inflation targets.
The pound fell 0.7%, hitting its weakest level since November 2023 at $1.2126, after a 1.7% drop last week. Christopher Wong, a strategist at Oversea-Chinese Banking Corp., highlighted that the UK’s slowing economy and growing fiscal deficits are major concerns for the pound.
Bond markets also reflected the impact of the strong payroll data. Australian 10-year yields rose by 12 basis points to 4.66%, and New Zealand’s yields increased by seven basis points. U.S. Treasury bonds, which had slumped last Friday, saw a 30-year yield surpass 5% for the first time in over a year.
China’s central bank intervened to stabilize the yuan, following its drop to near-record lows against the dollar in offshore markets. The People’s Bank of China signaled its intention to prevent excessive fluctuations by tightening control over foreign-exchange markets.
Key U.S. Economic Data to Watch
This week, traders will focus on key U.S. inflation data, with the Consumer Price Index (CPI) due on Wednesday. Analysts will also monitor inflation expectations from the New York Fed, the Producer Price Index (PPI) on Tuesday, and jobless claims on Thursday. Bank of America and Goldman Sachs have revised their expectations for the Fed, with Bank of America predicting no rate cuts and Goldman Sachs anticipating two cuts, down from previous forecasts.
Upcoming Events:
- India CPI: Monday
- ECB officials speak: Monday
- New York Fed President Williams speaks: Tuesday
- U.S. CPI and jobless claims: Wednesday
- Bank of America and Morgan Stanley earnings: Thursday
- China GDP and retail sales: Friday
- Eurozone CPI: Friday
Market Moves:
Stocks:
- S&P 500 futures -0.4%
- Nikkei 225 futures -1.2%
- Hong Kong Hang Seng -1.2%
- Shanghai Composite -0.5%
Currencies:
- Bloomberg Dollar Index +0.1%
- Euro -0.2% at $1.0223
- Offshore yuan +0.1% at 7.3527 per dollar
Commodities:
- Brent crude +2% at $81.05
- WTI crude +2% at $78.07
- Gold steady
Cryptocurrencies:
- Bitcoin -0.1% at $94,176.7
- Ether -1.1% at $3,228.8
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