Asia shares subdued, dollar refreshed by US rate risks

Asian share markets were subdued on Monday and the dollar held firm after a stunning US payrolls report pushed back against talk of recession but also bolstered the case for more super-sized rate hikes.

Markets quickly moved to price around a 70% chance the Federal Reserve will lift rates by 75 basis points in September, sending two-year yields up 20 basis points on Friday and further inverting the curve, Reuters reports.

The blockbuster data only raised the stakes for the July U.S. consumer prices report due on Wednesday, which could see a slight pullback in headline growth, but likely a further acceleration in core inflation.

“Despite sluggish growth and an expected slide to a 0.2% m/m July CPI gain, the Fed will likely raise policy rates 75 bps at its September meeting,” said Bruce Kasman, head of economic research at JPMorgan.

“The key question is whether it will decide that a material rise in the unemployment rate is necessary to achieve its objectives,” he warned. “If this is the case, its guidance on rates will move significantly higher, alongside a message that it will likely prove to be less sensitive to near-term growth disappointments.”

The risk haunted equity markets with S&P 500 futures ESc1 and Nasdaq futures NQc1 both down 0.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dipped 0.5%, after three sessions of gains. Japan’s Nikkei .N225 edged up 0.3% and South Korea’s KOSPI .KS11 went flat. Chinese blue chips .CSI300 eased 0.2%.

EUROSTOXX 50 futures STXEc1 fared better and added 0.5%, while FTSE futures FFIc1 rose 0.3%.

There was little obvious market reaction to news that the U.S. Senate on Sunday passed a sweeping $430 billion bill intended to fight climate change after some compromises on taxation within the deal. Read full story

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