Asian markets are set for a turbulent start on Monday, following the dramatic reactions in U.S. stocks, bonds, and the dollar to Friday’s robust U.S. employment data. The report, which showed the U.S. economy added over a quarter of a million jobs last month and saw a drop in the unemployment rate, indicates a strong labor market but also raises concerns over rising borrowing costs and the strength of the dollar.
U.S. Treasury yields surged to their highest levels in more than a year, and the dollar hit a two-year peak, signaling the potential for tighter financial conditions globally. Traders are now forecasting only a single quarter-point rate cut by the Federal Reserve this year, down from earlier expectations of more significant reductions. The S&P 500 fell to its lowest point since November 5, the day of the U.S. presidential election, as investors react to the possibility of soaring bond yields undermining their appetite for riskier assets such as stocks.
Japanese futures suggest a more than 1% drop in Tokyo’s stock market on Monday, and similar declines are expected across other Asian markets. The rise in long-term bond yields has already tightened financial conditions, with Goldman Sachs noting that emerging market financial conditions are the most restrictive since late 2023. This tightening comes amid rising uncertainty regarding the economic outlook in Asia, particularly in China, as concerns mount over the potential impact of U.S. President Trump’s “America First” trade policies.
In China, trade figures released Monday are unlikely to ease these concerns. Economists expect a rebound in exports in December, but imports are expected to have contracted for the third consecutive month. Import data will be closely watched, as it provides insight into domestic demand and could serve as an early indicator of the effectiveness of Beijing’s stimulus efforts.
This week also brings a slew of important economic data from China, including retail sales, industrial production, and GDP figures for the fourth quarter and full year. These will provide crucial insights into the health of the world’s second-largest economy as it grapples with both domestic challenges and external pressures.
Meanwhile, the People’s Bank of China’s decision on Friday to suspend purchases of treasury bonds has sparked speculation that the central bank is intensifying its defense of the yuan. Investors will be watching closely to see if this move can stabilize yields and prevent further depreciation of the currency.
The annual Asian Economic Forum kicks off in Hong Kong, with notable speakers including Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, Liu Haoling, CIO of China Investment Corp, and European Central Bank board member Philip Lane. Their discussions will be keenly observed as investors seek clues on the region’s economic direction.
In India, inflation data on Monday is expected to show a slight cooling in the annual rate, with the December figure forecasted to drop to 5.3% from 5.5% in November. This could provide some relief for investors concerned about rising inflation across Asia.
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