Asian markets rebound as dollar holds firm

FILE PHOTO Pedestrians are reflected in a window in front of a board displaying stock prices at the Australian Securities Exchange in Sydney.

SYDNEY Reuters Asian share markets made a stuttering start on Monday and the dollar held firm after a stunning U.S. payrolls report pushed back against talk of recession but also bolstered the case for more super-sized rate hikes.

Markets quickly moved to price around a 70% chance that the Federal Reserve will lift rates by 75 basis points in September, sending two-year yields up 20 basis points on Friday and further inverting the curve.

According to Bruce Kasman, head of economic research at JPMorgan, the Fed will likely raise policy rates by 75 bps at its September meeting despite sluggish growth and an expected slide to a 0.2% m July CPI gain.

He warned that the unemployment rate is needed to achieve its objectives, and that the key question is whether it will decide that a material rise in the unemployment rate is necessary. If this happens, its guidance on rates will move significantly higher, along with a message that it will likely prove less sensitive to near-term growth disappointments. Equity markets with S&P 500 futures and Nasdaq futures down 0.3% in early trade were haunted by the risk.

After three sessions of gains, the broadest index of Asia-Pacific shares outside Japan fell by 0.2%. Japan's Nikkei was down 0.3% and South Korea 0.4%.

There was no obvious market reaction to the news that the U.S. Senate passed a $430 billion bill intended to fight climate change after compromises on taxation within the deal.

The changes look unlikely to significantly change the net fiscal impact of the legislation, which continues to look likely to be less than 0.1% of GDP for the next several years, as new spending and new taxes are offset, according to analysts at Goldman Sachs.

Two-year Treasury yields were up at 3.24%, well over 40 basis points above 10 year yields.

Bonds got a safe-haven bid due to the unease over Beijing's sabre rattling against Taiwan, as China conducts four days of military exercises around the island.

Chinese data released over the weekend shows that exports picked up unexpectedly in July with a gain of 18%, while imports rose by just 2.3%.

The jobs boom and the jump in yields helped bolster the U.S. dollar, which was up to 106.640 against a basket of currencies that had gained 0.8% on Friday. FRX This key data point is a million miles from a current recession, both on a change of employment and levels of unemployment, said Alan Ruskin, global head of G 10 FX strategy at Deutsche Bank.

Data like this will further any thoughts about the U.S. The dollar was holding on to 135.26 yen after jumping 1.6% on Friday, while the euro was struggling at $1.0164 and not far from chart support around $1.0095.

The single currency was not helped by news Moody's had cut Italy's outlook to negative as Prime Minister Mario Draghi's resignation shook the country's political landscape.

The dollar went up on Friday, but it had managed to bounce back from the lows to get to $1,773 despite the fact that it had managed to rebound from the lows on Friday. GOL Oil prices fell recently after having suffered the worst week since April on worries about stalling global demand as central banks tightening. O R Brent lost 97 cents to $93.95, while U.S. crude fell by 89 cents to $88.12 per barrel.