Asian markets mostly softer after strong US jobs report

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Asian markets mostly softer after strong US jobs report

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

Markets quickly moved to price around a 70 per cent 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.

The Fed will raise policy rates by 75 bps at its September meeting, despite the sluggish growth and expected slide to a 0.2 per cent CPI gain, said Bruce Kasman, head of economic research at JPMorgan.

He warned that a material rise in the unemployment rate would be necessary to achieve its objectives, but the key question is whether it will decide whether or not it will increase the unemployment rate. 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. The risk haunted equity markets with S&P 500 futures and Nasdaq futures both down 0.2 per cent.

After three sessions of gains, the broadest index of Asia-Pacific shares outside Japan fell by 0.5 per cent. Japan's Nikkei was flat and South Korea's KOSPI dropped 0.2 per cent, while Chinese blue chips fell 0.1 per cent.

EUROSTOXX 50 futures did better and added 0.4 per cent, while FTSE futures rose 0.2 per cent.

There was little 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 are unlikely to change the net fiscal impact of the legislation, which is likely to be less than 0.1 per cent 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 went up at 3.25 per cent, a full 40 basis point above 10 year yields.

Bonds received 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.

In July, exports picked up unexpectedly with a gain of 18 per cent, while imports fell by just 2.3 per cent, according to Chinese data released over the weekend.

The jobs boom combined with the jump in yields to bolster the U.S. dollar, which was up to 106.640 against a basket of currencies, which had gained 0.8 per cent on Friday.

Alan Ruskin, global head of the G 10 FX strategy at Deutsche Bank, said that this key data point is a million miles from a current recession.

Data like this will further any thoughts about the U.S. The dollar was holding at 135.27 yen after a surge of 1.6 per cent on Friday, while the euro was struggling at $1.0173 and not far from chart support around $1.0095.

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

The rise in the dollar was a setback for gold, though it had managed to bounce back from the lows on Friday to stand at $1,773.

Oil prices fell after suffering the worst week since April on worries about stalling global demand as central banks tightening.

Brent lost 11 cents to $94.81, while U.S. crude fell 13 cents to $88.88 per barrel.