US Rates Rise Again, Stocks Decline – Reuters

Asian Markets Preview

A shift in sentiment regarding the Federal Reserve’s monetary policy followed the unexpectedly strong payroll numbers released on Friday. As a result, U.S. Treasury yields climbed back above 4% on Monday, prompting traders to adjust their expectations concerning a possible rate cut in November.

The change in outlook from the Fed impacted Wall Street’s momentum, yet the U.S. economy’s ability to evade a recession should foster optimism in Asian markets. This presents mainland Chinese investors with a renewed international context as they return from the Golden Week holiday and assess last month’s market interventions.

In response to the struggling Chinese economy, Beijing has rolled out its most aggressive stimulus measures since the onset of the COVID-19 pandemic, leading traders and investors to seek indicators of effectiveness from these policies.

Yields on both 10-year and two-year Treasury notes have surged to levels not seen since late July and mid-August, respectively, with futures markets now indicating an 85% probability of a quarter-point rate cut in November, alongside a 15% likelihood that the Fed may hold rates steady at its next meeting.

Just a week prior, some market participants had anticipated another 50 basis point reduction following September’s decision. However, the strong labor market data has led to a more hawkish stance from the Fed, causing the stock market to retreat nearly one percent.

The U.S. dollar showed mixed results, consolidating last week’s gains but ending slightly lower against the yen and Swiss franc. Despite ongoing tensions in the Middle East, the dollar managed to hold its ground, particularly against safe-haven currencies.

The dollar depreciated by about half a percent against the yen after reaching its highest level since mid-August. This yen weakness contributed to a significant rally in Japanese stocks, with the broader Asian market also performing well. The MSCI Asia-Pacific index gained nearly 1%, while the Asia ex-Japan index rose by nearly half a percent.

Key developments to watch in the coming days include:

• Australian consumer sentiment for October
• Japan’s Tankan manufacturing and service indexes for October
• Taiwan’s trade balance for September
• A U.S. auction of 3-year notes

These indicators may provide further insights and direction for market participants.