Asia stocks tumble as markets temper Fed rate cut expectations

Asian stocks fell sharply on Monday led by losses in Australian and Hong Kong shares as investors reassessed the likelihood of U.S. interest rate cuts following stronger-than-expected payroll data released last week.

Stock markets in Japan were closed for a holiday, contributing to softer trading volumes.

U.S. stock index futures were largely steady in Asian trade, while investors awaited crucial inflation data due later this week. Asia shares under pressure as markets lower Fed rate cut expectations

Hong Kong’s Hang Seng index slumped xx%, while  China’s Shanghai Shenzhen CSI 300  fell and Shanghai Composite  indexes inched lower on Monday.

Chinese trade data failed to provide any support to stock markets, despite showing trade balance  grew more than expected in December.

Australia’s S&P/ASX 200 dropped 1.4%. Insignia Financial Ltd (ASX:IFL ) shares rose nearly 3% to a three-year high on Monday after receiving a sweetened buyout bid from Bain Capital.

On Friday, data showed that U.S. job growth unexpectedly picked up in December, and the unemployment rate dropped, signaling a strong end to 2024 for the labor market. This supports expectations that the Federal Reserve will leave interest rates steady this month.

The Fed has reduced rates by 100 basis points in 2024 but signaled fewer-than-expected cuts in 2025 in the face of sticky inflation and a resilient economy.

“Yet another upside surprise on US jobs numbers will intensify the belief that Federal Reserve officials are under no pressure to cut interest rates in the near term. We will get the benchmark jobs revisions next month, which could change the story, but in an environment of sticky inflation the risks are increasingly skewed towards an extended pause from the Fed,” ING analysts said in a recent note.

Goldman Sachs now anticipates the Fed will reduce interest rates twice this year, a revision from their previous prediction of three rate cuts.

Elsewhere in Asia, the Philippines’ PSEi Composite fell more than 1%, while Singapore’s Straits Times Index  lost 0.3%.

India's Nifty 50 Futures indicated a sharp drop at open.

South Korea’s KOSPI  index fell 1% amid ongoing political unrest in the country. South Korean investigating authorities are trying to arrest impeached President Yoon Suk Yeol over his attempt to impose martial law. Data barrage on tap this week

Globally, the focus will be squarely on key U.S. data releases this week including the December Producer Price Index (PPI) on Tuesday, the consumer price inflation on Wednesday, retail sales on Thursday, and industrial production on Friday.

China is also scheduled to release several key economic indicators that will provide insights into its economic performance at the close of 2024. The country’s full-year 2024 Gross Domestic Product (GDP) figures are due on Friday.  Additionally, December's industrial production data, and retail sales figures are also due on Friday.

In Australia, December employment data is due on Thursday.

Source: Investing.com