Markets Consider Potential US ‘No Landing’ – Reuters

By Jamie McGeever

A snapshot of the upcoming trading day in Asian markets reveals a significant shift in the global macroeconomic landscape since Friday, driven by unexpectedly strong U.S. employment figures.

The September non-farm payrolls report released on Friday was robust across the board, challenging the assumptions investors and possibly the Federal Reserve had been forming regarding the trajectory of U.S. interest rates.

The immediate reaction in U.S. rate futures markets was telling: a 50 basis point rate cut next month has been ruled out entirely. Instead, pricing now aligns with Fed Chair Jerome Powell’s base case of a 25 basis point cut at the next two meetings. Additionally, the anticipated total number of rate cuts within the easing cycle has been reduced, suggesting a higher predicted terminal rate around 3.25% by 2026, which traders may continue to adjust upwards this week.

While inflation seems to be moving towards the Fed’s 2% target, the same cannot be said for the economy. With such a robust labor market, the likelihood of a ‘no landing’ scenario appears more plausible than a soft landing.

To highlight the strength of the report, the 254,000 payrolls figure surpassed all forecasts in a Reuters poll, and only three out of 56 economists predicted the unemployment rate would drop to 4.1%.

In response, the U.S. dollar, bond yields, and stock markets surged on Friday, reflecting a renewed confidence in the U.S. economy. The stock market saw significant gains, with the index rising more than 2% over the week—its best performance in over two years—while futures rose by 9%, marking their best week since January 2023. The Dow closed at a record high.

This optimism is likely to spill over into Asia’s markets on Monday, with futures indicating a potential rise of around 2.5% at the open in Japan. Nevertheless, the rising financial conditions, as indicated by sharply increasing Treasury yields, the strengthening dollar, and rising oil prices, suggest that caution may still be warranted.

In terms of economic data, Thailand’s inflation figures for September are set to be released. An annual headline inflation rate of 0.8% is anticipated, a significant increase from August’s figure. Thailand has consistently recorded inflation below its target range of 1% to 3% since April last year, except for May of this year. Following a recent meeting between the finance minister and central bank governor, discussions regarding the inflation target are ongoing, with the central bank remaining resistant to government pressures to cut interest rates.

Key developments to watch for in Asian markets on Monday include:

• Thailand’s inflation data for September
• China’s foreign exchange reserves for September
• Japan’s foreign exchange reserves for September