Asian equities advanced on Monday as a surprisingly soft US jobs report dampened expectations for a September Federal Reserve rate increase, reviving risk appetite across the region. Japan's Nikkei 225 jumped about 2%, South Korea's KOSPI added 1.1%, and MSCI's broadest Asia-Pacific index outside Japan rose 0.8%.
The rally followed record closes on Wall Street on Friday, where investors interpreted weaker hiring as a sign the Fed could stay patient. However, China's CSI 300 slipped 0.4% after inflation data underscored persistent weakness in domestic demand.
Weak payrolls reset the Fed debate
Friday's employment report shifted the global market tone. US nonfarm payrolls fell by 23,000 in July, with downward revisions totaling 103,000 for May and June. The unemployment rate dipped to 4.1%, largely due to a drop in labor-force participation to 61.4%.
That data pushed market pricing for a September quarter-point hike down to about 44% on Monday, from roughly two-thirds a week earlier. The next catalyst arrives Wednesday with the July consumer-price index, where economists expect headline inflation to rise 0.1% month-over-month and core prices to increase 0.2%.
JPMorgan economist Michael Feroli noted that a core reading near 0.22% would likely be insufficient on its own to force a September move, but repeated readings closer to 0.3% would strengthen the case for tighter policy. Treasury yields edged higher in Asia, with the 10-year yield around 4.66%.
Nikkei and KOSPI ride Wall Street's rebound
Lower US rate-hike expectations gave Asian technology markets breathing room after weeks of volatile swings in AI-linked shares. The Nikkei's 2% gain made Japan one of Monday's strongest performers, while the KOSPI rose 1.1% after seven consecutive weekly declines.
Both markets benefited from the rebound in US tech stocks and lower bond yields, though their domestic risks differ. For Japan, the yen remains the key pressure point. The dollar traded near 158.2 yen after last week's joint intervention by Japan and the US.
Meanwhile, the Bank of Japan's summary of its July meeting showed policymakers growing more concerned about inflation overshooting its 2% target. Some members argued that rate increases may need to come faster than markets expect. The BOJ kept its policy rate around 1% in July, rejecting a proposal for an immediate hike to 1.25%. The more hawkish debate strengthens the case for another move and could limit the support Japanese exporters receive from a weak yen.
South Korea faces a different challenge. The KOSPI is recovering from a severe correction in its semiconductor trade, leaving Samsung Electronics and SK Hynix highly sensitive to shifts in US yields and AI sentiment. For more on the divergence between these markets, see our analysis of KOSPI's slide versus Nikkei's gain.
Oil and China keep the rally from looking clean
The risk-on tone was complicated by higher energy prices. Brent crude rose about 1% to $84.40 a barrel, and US crude gained 0.8% to $78.80, as shipping through the Strait of Hormuz remained restricted. Iran said an agreement with Oman defining new shipping lanes was nearing completion but reiterated that the strait would not fully reopen until Washington met additional conditions.
That uncertainty keeps a geopolitical premium in crude just as lower oil had started to ease inflation fears. China added another note of caution. Producer-price inflation slowed to 3.5% in July from 4.1% in June, while consumer inflation eased to 0.5%. ANZ strategist Zhaopeng Xing views the slowdown as a combination of softer energy costs and still-weak domestic demand, with the effects of faster fiscal spending likely to arrive only gradually.
Corporate earnings remain the main counterweight. With nearly 90% of S&P 500 companies having reported, Bank of America estimates underlying earnings growth at about 30% after stripping out investment-related gains at Alphabet and Amazon. The bank also sees median earnings growth of 28% among AI-linked companies, compared with 12% elsewhere. That strength helped US equities reach fresh highs last week, with the Dow hitting a record while the S&P 500 retreated from its peak.
For Asia, Monday's rebound rests on a delicate balance: softer US data must cool the Fed without signalling a deeper downturn, while oil needs to stay contained enough to prevent inflation from returning as the market's dominant risk. Investors will also watch upcoming earnings from major tech firms, such as Atlassian's strong quarter, for further direction.
This article is for informational purposes only and does not constitute financial advice.
