Asian stocks edged higher as the dollar got off to a strong start to the week after U.S. jobs data highlighted a tight labor market, bolstering expectations that the Federal Reserve will raise interest rates again at its meeting next month.
MSCI’s broadest index of Asia-Pacific stocks outside Japan was up 0.14%, while Japan’s Nikkei gained 0.5%. Australian, Hong Kong and European markets are closed for Easter. E-mini futures for the S&P 500 remained flat.
Chinese stocks fell on Monday, with the CSI300 index down 0.2%, while the Shanghai Composite index lost nearly 0.3%.
Data from the Labor Department showed on Friday that the number of nonfarm payrolls rose by 236,000 last month, slightly less than the 239,000 expected by economists polled by Archyde.com.
The closely watched report also showed that annual wage gains have slowed but remain too high to be consistent with the US central bank’s 2% inflation target.
According to Mansoor Mohi-uddin, chief economist at the Bank of Singapore, the labor market is still too tight for the Fed to bring inflation back to its 2% target without raising interest rates further.
“Investors expect last month’s U.S. bank failures to force the Fed to cut rates, but officials warn that too high inflation will prevent the Fed from easing policy this year.
According to the CME’s FedWatch tool, markets are currently pricing a 66% chance that the Fed will raise interest rates by 25 basis points at its May 2-3 meeting.
Investors’ attention will now turn to the inflation report due on Wednesday, which will determine the course the Fed takes in its fight against prices. Minutes from the central bank’s last meeting in March are also expected to be released on Wednesday.
As recession fears mount, investors are betting that the upheaval in the banking system caused by the sudden collapse of Silicon Valley Bank in March will tighten credit conditions. Traders are increasingly convinced that the Fed will cut interest rates in the second half to avoid an economic recession.
But some analysts see a disconnect between the Fed’s likely path and market expectations.
“Not only should high inflation and a still strong job market make declines unlikely,” according to Citi strategists. “But we believe that continued overly high inflation will lead to further hikes. Citi expects three more rate hikes of 25 basis points.
The yield on two-year U.S. Treasuries, which generally moves in line with interest rate expectations, rose 13 basis points to 3.951%, while the yield on 10-year Treasuries rose 8 .8 basis points to 3.378%.
A heavily watched part of the US Treasury yield curve, measuring the spread between two- and 10-year Treasury yields, seen as an indicator of economic expectations, was at -57.7 basis points.
In the currency market, the Dollar Index, which measures the US currency against six major currencies, rose 0.118% to 102.14.
The euro was up 0.05% at $1.0902, while the pound traded at $1.2416, up 0.02% on the day.
The yen weakened 0.32% against the greenback to 132.55 to the dollar as Japan’s new central bank governor Kazuo Ueda takes over from Haruhiko Kuroda. Ueda, whose term began on Sunday, will hold its inaugural press conference at 1015 GMT on Monday.
Spot gold was down 0.5% at $1,998.53 an ounce, while US gold futures were down 0.27% at $2,006.50 an ounce. [GOL/].
U.S. crude rose 0.09% to $80.77 a barrel and Brent was at $85.18, up 0.07% on the day. [O/R]