Asian Shares Slip Amid Strong Payrolls and Rising Yields

By Wayne Cole

SYDNEY (Reuters) – Asian shares slipped on Monday while the dollar held near 14-month peaks after an unambiguously strong payrolls report raised bond yields and tested elevated equity valuations as the earnings season begins.

The impact of the jobs report on U.S. rate cut prospects heightened anticipation for consumer price figures on Wednesday. A rise in core inflation above the forecast of 0.2% could jeopardize easing expectations.

Additionally, oil prices surged to four-month highs amid indications of reduced crude shipments from Russia due to heightened U.S. sanctions.

Currently, markets have scaled back expectations for Federal Reserve rate cuts to 27 basis points for all of 2025, with the terminal rate now anticipated around 4.0%, contrasting with the 3.0% many expected a year ago.

“Given such strong data, we now expect the Fed to cut rates only once this year, by 25bp in June,” stated Christian Keller, head of economic research at Barclays (LON:BARC).

Keller also pointed out that a rate cut in June is still expected as economic slowdown and declining inflation are anticipated in the first half of the year, followed by some inflation firming due to tariffs in the second half.

At least five Federal Reserve officials are scheduled to speak this week regarding their reactions to the jobs surprise, including the influential Federal Reserve Bank of New York President John Williams on Wednesday.

The hawkish outlook on rates elevated yields on 10-year Treasuries to 14-month peaks of 4.79%, trading last at 4.764% in Asia.

Higher yields on risk-free bonds raise the bar for corporate earnings and make debt comparatively more attractive than equities, property, and commodities. They also increase borrowing costs for businesses and consumers, especially amid concerns that President-elect Donald Trump’s proposed tariffs would inflate import prices.

This situation may test optimism surrounding corporate earnings as earnings season kicks off, particularly with major banks reporting on Wednesday, including Citigroup (NYSE:C), Goldman Sachs, and JPMorgan.

Bears Eye Sterling

A holiday in Japan resulted in thin early trading on Monday, with MSCI’s broadest index of Asia-Pacific shares outside Japan declining by 0.4%.

Although the Nikkei index was shut, futures traded down at 38,770, falling from a cash close of 39,190.

In South Korea, stocks eased 0.2% amid an unstable political situation as a Constitutional Court hearing on Tuesday will decide the fate of impeached president Yoon Suk Yeol.

In China, December trade figures are expected later Monday, followed by data on gross domestic product, retail sales, and industrial output on Friday.

S&P 500 and Nasdaq futures saw minor declines of 0.1%, following Friday’s pullback.

Rising Treasury yields have driven up the dollar, causing the euro to fall for eight consecutive weeks, hovering at $1.0240, just above its lowest since November 2022. The dollar remained steady at 157.84 yen, despite falling from a six-month high of 158.88 amid reports that the Bank of Japan may revise its inflation forecasts later this month in preparation for another rate hike.

Sterling lingered near 14-month lows at $1.2202, with recent declines in the gilt market dampening sentiment amid concerns that the Labour government might need to borrow more for spending commitments.

British finance minister Rachel Reeves pledged on Saturday to ensure the government’s fiscal rules are upheld.

Gold prices remained firm at $2,688 an ounce, showing unexpected resilience against a stronger dollar and increasing bond yields.

Oil prices continued to rise due to supply concerns, with Russia’s seaborne exports dropping to their lowest levels since August 2023, even before the latest round of U.S. sanctions. Brent crude jumped $1.43 to $81.19 a barrel, while U.S. crude surged $1.50 to $78.07 per barrel.