Stocks Plummet as Fed Rate Cut Bets Dwindle and Euro Suffers Political Blow

Singapore – Asian stocks took a hit on Monday as traders adjusted their expectations for Federal Reserve rate cuts, citing the strong U.S. labor market. The announcement of a snap election in France added to political concerns, leading to a drop in the euro’s value.

With several Asian markets closed for holidays, trading was subdued. Despite this, MSCI’s index of Asia-Pacific shares outside Japan fell by 0.33%. Meanwhile, U.S. futures saw marginal gains, with S&P 500 and Nasdaq futures edging up by about 0.03%.

The strong dollar and elevated U.S. Treasury yields reflected investors’ uncertainty. The market rally paused following Friday’s nonfarm payrolls report, which revealed more jobs were created in May than expected and annual wage growth accelerated, indicating a robust labor market.

Expectations for Fed rate cuts have decreased, with only about 36 basis points priced in compared to 50 bps the previous week. The odds of an easing cycle starting in September have also decreased, leading to speculation about the Fed’s upcoming policy decision and U.S. inflation figures for May.

In Japan, the Nikkei index climbed 0.9% thanks to a weaker yen. The Bank of Japan’s upcoming monetary policy meeting could offer insights into its bond purchase plans.

In France, President Emmanuel Macron’s decision to call snap elections after a defeat in the EU vote stirred political uncertainty. This move offers the far-right a chance at power and poses a challenge to Macron’s presidency. The euro fell to a one-month low amid concerns over Europe’s political future.

Commodity markets saw oil prices rise, supported by expectations of increased summer fuel demand. Brent crude futures traded at $79.83 a barrel, while U.S. West Texas Intermediate crude futures hovered around $75.71 per barrel. Gold prices also saw a modest increase to $2,295.29 an ounce.

Overall, global markets remain cautious amidst evolving political and economic developments, with investors closely monitoring central bank policies and geopolitical events for future market trends.