Asian markets dip as bond yields surge on strong jobs report

January 13, 2025 (MLN): Major share indexes slipped in Asia on Monday while the dollar held near 14-month peaks after an unambiguously strong payrolls report shoved up bond yields.

The rise in yields tested lofty equity valuations just as the earnings season gets underway, as Reuters reported.

That hawkish jolt also raised the stakes for U.S. consumer price figures on Wednesday, as any rise in the core greater than the forecast 0.2% would threaten to end easing altogether.

Not helping was a spike in oil prices to four-month highs amid signs of weaker crude shipments from Russia as Washington stepped up sanctions on the country.

Data also showed China's export growth picked up steam in December, while imports recovered, as the world's No. 2 economy braces for mounting trade risks with the incoming U.S. administration.

Markets have already scaled back expectations for Federal Reserve rate cuts to just 27 basis points for all of 2025, with the terminal level now seen around 4.0% compared to the 3.0% many had hoped for this time last year.

"Given such strong data, we now expect the Fed to cut rates only once this year, by 25bp in June," said Christian Keller, head of economic research at Barclays.

"We still expect the FOMC to proceed with a cut in June, as we expect the economy to slow in coming quarters and inflation to continue to decline in H1 before tariffs lead to some firming in inflation in H2."

At least five Fed officials are scheduled to speak this week and share their reactions to the jobs surprise.

The influential Federal Reserve Bank of New York President John Williams is set to appear on Wednesday.

The sea change in rates lifted yields on 10-year Treasuries to 14-month peaks of 4.79%, and they were last trading at 4.764% in Asia.

Higher yields on risk-free bonds raise the discounting bar for corporate earnings and make debt relatively more attractive compared to equities, cash, property, and commodities.

They also raise borrowing costs for businesses and consumers, and that is before President-elect Donald Trump's proposed tariffs inflate import prices.

This could test the optimism around corporate earnings as the season kicks off with the major banks on Wednesday, including Citigroup, Goldman Sachs, and JPMorgan.

S&P 500 futures fell 0.4%, and Nasdaq futures 0.5%, adding to Friday's pullback.

EURO STOXX 50 futures and FTSE futures eased 0.2%, while DAX futures were almost flat.

A holiday in Japan made for thin early trading on Monday and MSCI's broadest index of Asia-Pacific shares outside Japan edged down 0.4%.

While the Nikkei was shut, futures traded down sharply at 38,430 compared to a cash close of 39,190.

South Korean stocks eased 0%, with the political situation still in flux as a Constitutional Court hearing begins on Tuesday to decide if impeached president, Yoon Suk Yeol, will be removed from office or reinstated.

Chinese blue chips were off 0.2%, as data showed exports rose a surprisingly steep 10.7% and imports added 1%.

The performance was almost too strong given it swelled the surplus with the U.S. to $105 billion and provided ammunition to those calling for harsh tariffs on Chinese goods.

China's central bank also stepped up efforts to defend a weakening yuan by relaxing rules to allow more offshore borrowing and sending verbal warnings on the currency.

Figures for Chinese gross domestic product, retail sales, and industrial output are out on Friday.

The inexorable rise in Treasury yields has boosted the dollar across the board and seen the euro fall for eight weeks straight to sit at $1.0230, just above its lowest since November 2022.

The dollar eased to 157.60 ¥, and off a six-month top of 158.88 amid reports the Bank of Japan might revise its inflation forecasts this month as a prelude to hiking rates again.

Sterling was pinned at 14-month lows of $1.2170, with sentiment soured by a recent rout in the gilt market on concerns the Labour government would have to borrow more to fund spending pledges.

British finance minister Rachel Reeves on Saturday vowed she would act to ensure the government's fiscal rules were met.

Gold prices were holding firm at $2,688 an ounce, having proven surprisingly resilient in the face of a stronger dollar and higher bond yields.

Oil prices continued to climb on supply concerns as Russia's seaborne exports hit their lowest since August 2023, even before the latest round of U.S. sanctions.

Brent jumped $1.19 to $80.94 a barrel, while U.S. crude surged $1.27 to $77.84 per barrel.

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