Asian Stocks Rise as Fed Hike Bets Fade
Asian stocks started the week higher as investors reduced expectations for another Federal Reserve interest-rate increase in October following weaker-than-expected U.S. employment data. The shift in rate expectations supported equities, although concerns surrounding government debt and rising borrowing costs continued to weigh on global markets.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained around 1%, while Japan’s Nikkei rose 2.5%. Trading volumes across parts of Asia were relatively light because markets in China, South Korea and New South Wales were closed for holidays.
Softer U.S. jobs data changes Fed expectations
U.S. employment growth slowed more than expected in September, while payroll figures for the previous two months were revised lower. The weaker labour-market data reduced expectations that the Federal Reserve would raise interest rates again at its October meeting.
Markets were pricing in less than a 20% probability of an October rate increase, although investors continued to see a December move as possible. The change in expectations also affected bond and currency markets, with investors reassessing how long U.S. borrowing costs could remain elevated.
Despite the weaker jobs data, U.S. Treasury yields remained high. The dollar also stayed relatively firm because elevated Treasury yields continued to support demand for U.S. assets.
France becomes a major market concern
European markets faced a different source of pressure as concerns about France’s fiscal position intensified. The euro fell to a 17-month low, while the widening gap between French and German government bond yields raised concerns about the possibility of broader stress across European markets.
The French bond market has been under pressure as investors assess the country’s high debt levels and political uncertainty ahead of next year’s presidential election. The combination of fiscal concerns, elevated oil prices and higher global borrowing costs has made government debt a central focus for investors.
Japan also remained in focus after its 30-year government bond yield reached a record high. Investors were watching Prime Minister Sanae Takaichi’s comments as the government faces pressure to manage Japan’s large debt burden while responding to changing financial-market conditions.
