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Rate Cut Worry, French Poll Shock Hurt Asia; Nikkei Bucks Trend

The halt in the Asian risk rally came as Friday’s non-farm payroll data underscored the resilience of the US labour market

A visitor using his smartphone takes photos of an electronic screen displaying Japan's Nikkei share average, which surged past an all-time record high scaled in December 1989, inside a building in Tokyo, Japan February 22, 2024. REUTERS/Issei Kato/File Photo Purchase Licensing Rights
A visitor using his smartphone takes photos of an electronic screen displaying Japan's Nikkei share average inside a building in Tokyo, Japan. Photo: Reuters


Stocks in Asia slumped on Monday as fresh uncertainty on Federal rate cuts dampened sentiment and a snap election call in France sparked wider political concerns.

MSCI’s broadest index of Asia-Pacific shares outside Japan slumped 0.33% despite thin trading due to market holidays in Australia, China, Hong Kong and Taiwan.

But Japan’s Nikkei bucked the trend as export-related stocks gained on a weaker yen and a rise in domestic yields boosted financial stocks.


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The Nikkei rallied 0.92% to 39,038.16, its highest closing level since May 23, while the broader Topix rose 1% to 2,782.49.

The Nikkei has struggled to maintain the 39,000 level in recent months, after retreating from an all-time high of 41,087.75 hit earlier this year. Overseas investors, whose renewed interest in the market helped drive the momentum, have pulled back in recent weeks.

The index was boosted by insurance and banking stocks, with Dai-ichi Life Holdings gaining 3.6% to lead the pack. The stocks were boosted by Japanese government bond yields that tracked their US Treasury peers higher after Friday’s confirm payrolls report.

The stronger-than-expected data also spurred a rebound in the dollar, which traded around 157.07 yen during the session.

That pushed export-related stocks including Toyota Motor, up 1.7%, which tend to benefit from a weaker domestic currency.


Event-packed week

The halt in the Asian risk rally comes as data underscores the resilience of the US labour market.

Futures now show roughly 36 basis points (bps) worth of cuts priced in for the Fed, down from 50 bps last week. The odds for an easing cycle beginning in September have also lengthened.

The latest developments come ahead of the Fed’s policy decision on Wednesday, with US inflation figures for May due just before that.

“It’s going to be very difficult for the Fed to continue predicting three rate cuts this year,” Rob Carnell, ING’s regional head of research for Asia-Pacific, said.

“While the most likely outcome is we’ll see the three move to two, it is possible we just get a move to one.”

Meanwhile, the Bank of Japan (BOJ) also holds its two-day monetary policy meeting this week and could offer fresh guidance on how it plans to scale back its massive bond purchases.


France’s shock election

In France on Sunday, President Emmanuel Macron called snap legislative elections for later this month after he was trounced in the European Union vote by Marine Le Pen’s far-right party.

Macron’s shock decision set off a political earthquake in France, offering the far-right a shot at real political power after years on the sidelines and threatening to neuter his presidency three years before it ends.

The euro tumbled to a one-month low in the wake of the announcement amid growing uncertainty over Europe’s future political direction. It was last 0.5% lower at $1.0749.

Futures similarly fell, with EUROSTOXX 50 futures losing 0.42% while French bond futures shed 0.3%. FTSE futures slid 0.7%.

US stock futures also pointed to a weak open on Wall Street.

“The market moves are all about what we are seeing in a European context – and news from France has caused a risk premium around European assets,” BlueBay Asset Management chief investment officer Mark Dowding said.

“It could swing a bit further but we need to remind ourselves this is a parliamentary election, not a presidential election in France.”


Key figures:

Tokyo – Nikkei 225 > UP 0.92% at 39,038.16 (close)

Hong Kong – Hang Seng Index <> CLOSED

Shanghai – Composite <> CLOSED

London – FTSE 100 < DOWN 0.35% at 8,216.37 (1040 GMT)

New York – Dow < DOWN 0.22% at 38,798.99 (Friday close)


  • Reuters, with additional editing by Vishakha Saxena


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Vishakha Saxena

Vishakha Saxena is the Multimedia and Social Media Editor at Asia Financial. She has worked as a digital journalist since 2013, and is an experienced writer and multimedia producer. As a trader and investor, she is keenly interested in new economy, emerging markets and the intersections of finance and society. You can write to her at [email protected]


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