Singapore, June 10 (BNA): Asian stocks sank on Monday as traders heavily pared back bets for Federal Reserve rate cuts this year given a still-tight U.S. labour market, while a snap election call in France sparked wider 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 slumped 0.33%, according to Reuters.
U.S. futures edged marginally higher, with S&P 500 futures and Nasdaq futures up about 0.03% each, reversing slight losses from earlier in the session.
The dollar was back on the front foot, while U.S. Treasury yields stayed elevated.
The halt 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 resilience of the labour market.
Futures now show roughly 36 basis points (bps) worth of cuts priced in for the Fed, down from 50 bps last week. The odds for an easing cycle beginning in September have also lengthened.
The latest developments come ahead of the Fed’s policy decision on Wednesday, with U.S. inflation figures for May due just before that.
“It’s going to be very difficult for the Fed to continue predicting three rate cuts this year,” said 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.”
U.S. Treasury yields similarly rose on Monday, reflecting the higher-for-longer U.S. rate expectations.
The two-year yield and benchmark 10-year yield each ticked up about two bps to 4.8931% and 4.4512%, respectively.
Against the dollar, the yen fell more than 0.2% to 157.09. The dollar index , which measures the greenback against a basket of six peers, firmed to 105.29.
Japan’s Nikkei rose 0.9%, helped by a weaker yen.
The Bank of Japan (BOJ) 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.
Over in France, President Emmanuel Macron on Sunday called snap legislative elections for later this month after he was trounced in the European Unionvote by Marine Le Pen’s far-right party.
Macron’s shock decision set off a political earthquake in France, offering the far-right a shot at real political power after years on the sidelines and threatening to neuter his presidency three years before it ends.
H.F.
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