Australian stocks gained as much as 1.1%, Korean shares rose 2.1% and US equity futures edged higher after the S&P 500 jumped more than 2% on Friday to salvage the first weekly advance in the past five. Stocks in Hong Kong and Shanghai gained 1.7% and 0.6% respectively after a People’s Bank of China official suggested growth will rebound sharply. Japanese markets are closed for a public holiday. 

The dollar extended Friday’s drop after the Institute for Supply Management’s index of services fell by the most since April 2020 to contractionary territory and cooler wage growth fueled expectations the Fed will slow its pace of rate hikes. The South Korean won jumped above 1,250 per dollar for the first time in six months.

The December inflation report due on Thursday will be front of mind for traders after the jobs data failed to offer a clear picture of the state of the American labour market, with unemployment at its lowest level in decades, while wage gains were weak. Kansas City Fed’s Esther George, on Friday, warned that officials will have a tough road ahead as they attempt to balance inflation and employment while others have previously emphasised rates will be higher, and held there for longer than earlier anticipated.

Swaps contracts show investors now expect the policy rate to peak at under 5% this cycle, down from 5.06% just before Friday’s jobs report. While traders remain divided about the size of February’s hike, with 32 basis points of tightening priced in, it appears that a quarter-point move is seen as more likely than a half-point increase.

While pressure on the Fed to hike by 50 basis points on Feb. 1 has eased, “policy makers appear to be increasingly frustrated by market-pricing at odds with Fed signalling in terms of both the terminal funds rate and timing of initial rate cut”, BNP Paribas economists led by Carl Riccadonna wrote in a note to clients. “This could tilt their bias toward a more forceful response at the next meeting.”

Meanwhile, China’s economic growth will quickly rebound and return to its “normal” path as Beijing provides more financial support to households and private companies to help them recover after the nation ended its Covid-Zero policy, Guo Shuqing, party secretary of the People’s Bank of China, said in an interview with People’s Daily published on Sunday.  

“Asian markets have been through a much more severe bear market than it typically tends to see and the China reopening will be more positive even for Asia-ex China markets,” Rupal Agarwal, a quantitative strategist at Sanford C Bernstein in Singapore, said on Bloomberg TV. The 2022 laggards will come back sharply this year, “so we are favouring more China, Korea and Taiwan”, she said.

Investors will also be keeping a close eye on Brazilian assets after thousands of supporters of former president Jair Bolsonaro stormed the country’s top government institutions in an insurrection that will test the leadership of President Luiz Inacio Lula da Silva just a week after he took office. 

Some of the main moves in markets as of 9:40am in Hong Kong:

Stocks

• S&P/ASX 200 gained 0.8%
• Kospi Index surged 2%
• Hang Seng Index rallied 1.7%
• S&P 500 futures edged 0.2% higher. Cash market rose 2.3% on Friday
• Nikkei 225 futures added 0.9% on Friday. Cash markets are closed for a public holiday

Currencies

• Bloomberg Dollar Spot Index fell 0.2%; dropped 1% on Friday
• The Japanese yen gained 0.2% to 131.78 yen per dollar on Monday
• The Australian dollar rose 0.4% to 69.02 US cents
• The euro lifted 0.2% to $1.0668

Cryptocurrencies

• Bitcoin rose 1.4% to $17,189.38

Bonds

• The yield on Australian 10-year notes fell 7 basis points to 3.75% on Monday
• The yield on 10-year Treasuries declined 16 basis points to 3.56% on Friday. There will be no cash trading of Treasuries in the Asia session on Monday

Commodities

• West Texas Intermediate crude rose 0.7% to $74.26 a barrel
• Gold gained 0.4% to $1872.84 an ounce. BM/DM