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, Reuters reported. Meanwhile, 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 percent.
U.S. futures edged marginally higher, with S&P 500 futures and Nasdaq futures up about 0.03 percent each, reversing slight losses from earlier in the session.
The dollar was back on the front foot, while U.S. Treasury yields stayed elevated.
Impact of U.S. report
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.
Bond, forex market
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 percent and 4.4512 percent, respectively.
Against the dollar, the yen fell more than 0.2 percent 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 percent, 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.
Snap election
Over in France, President Emmanuel Macron on Sunday called snap legislative elections for later this month after he was trounced in the European Union vote by Marine Le Pen’s far-right party.
Macron’s shock decision set off a political earthquake in France.
The euro tumbled to a one-month low in the wake of the announcement amid growing uncertainty over Europe’s future political direction. It was last 0.5 percent lower at US$1.0749.
Futures similarly fell, with EUROSTOXX 50 futures losing 0.42 percent while French bond futures shed 0.3 percent. FTSE futures slid 0.7 percent.
Commodities
In commodities, oil prices last traded higher, aided by hopes of rising fuel demand this summer, though its gains were capped by a stronger dollar.
Brent crude futures gained 0.26 percent to US$79.83 a barrel, while U.S. West Texas Intermediate crude futures ticked up 0.24 percent to US$75.71 per barrel.
Spot gold rose 0.13 percent to US$2,295.29 an ounce.