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The greenback hit a two-year excessive towards main currencies on Monday after sturdy US jobs knowledge late final week led merchants to slash expectations for additional rate of interest cuts by the Federal Reserve.
The greenback index, which tracks the US forex towards the yen, euro and different main currencies, reached its highest stage since November 2022, with the pound falling 0.5 per cent to $1.216 — a brand new 14-month low.
Equities in China, India, South Korea and Australia additionally declined on Monday after the US payrolls report on Friday confirmed 256,000 jobs have been added in December, blowing previous consensus estimates and elevating concern {that a} sturdy economic system might sluggish the Fed’s tempo of charge cuts.
“Persons are stunned by the financial energy within the US,” mentioned Jason Lui, head of Asia-Pacific fairness and spinoff technique at BNP Paribas. “With US rates of interest so excessive you should have a liquidity drain in Asia, with capital flowing to the US or staying there.”
Australia’s S&P/ASX 200 index fell 1.2 per cent, whereas South Korea’s Kospi declined 1.1 per cent. India’s Sensex fell 0.8 per cent. Japanese markets have been closed on Monday.
“Rising market equities historically carry out higher when US rates of interest are decrease,” mentioned Sunil Tirumalai, head of Asian fairness technique at UBS. “The Fed not chopping and weak currencies means much less room for Asian charge cuts.”
Hong Kong’s Cling Seng index declined 1.2 per cent, whereas mainland China’s CSI 300 was down 0.5 per cent.
“The onshore [Chinese] market remains to be extra resilient relative to exterior noise,” mentioned Lui, who mentioned mainland traders have been nonetheless shifting funds from low-yield financial savings accounts into the fairness market.
Nonetheless, mainland Chinese language equities have steadily declined by 17 per cent since a peak on October 8 final yr, as hopes for a bazooka-style stimulus from Beijing pale and considerations over the financial affect of Donald Trump’s second time period hit the market.
“Some stimulus measures have been a constructive shock,” mentioned Tirumalai, who acknowledged China was nonetheless in a “bear market”. “The extension of the trade-in scheme to a wider array of client items for instance got here sooner than we thought.”
Oil costs rose to a four-month excessive after the US introduced sweeping new sanctions on Russian oil on Friday.
Costs for Brent crude, the worldwide benchmark, climbed 1.6 per cent to $81 a barrel, whereas US gauge West Texas Intermediate gained 1.7 per cent to $77.90 a barrel.
