Markets struggle as strong US jobs boost Fed rate hike bets

On Monday, markets struggled and the dollar held big gains, as a blockbuster US jobs report ramped up bets that the Federal Reserve would announce sharper interest rate hikes as it continues to try taming runaway inflation.

While the employment reading-- which was more than twice as high as expected-- indicated that the world's top economy remained resilient, despite rising prices and borrowing costs, it will complicate the bank's plans to tighten monetary policy.

Traders have hoped that with several indicators pointing to a slowdown, such as GDP figures showing a technical recession, policymakers could begin to ease back on their pace of rate hikes.

Now, speculation is growing that the Fed will have to announce a third successive 75 basis-point increase next month, particularly as officials have said their decisions will be data-dependent.

"Friday's payroll report indicates an overheated labour market that continues to tighten further," said SPI Asset Management's Stephen Innes.

"Hence at minimum, the markets expect another 100 basis points of Fed funds rate increases over the next three meetings... with risks skewed towards significant increases."

All eyes are now on the release this week of US July inflation data, which is expected to show a slight slowdown from June, but still at four-decade highs.

"[The] report seems very unlikely to offer 'compelling evidence' of a slowdown needed for the Fed to pull away from its aggressive inflation-fighting mode," Innes added.

The jobs figures left Wall Street's main indexes mixed on Friday, and Asia followed suit, with markets fluctuating in early trade.

However, there was some relief that tensions had calmed since Nancy Pelosi's visit to Taiwan last week sparked a furious reaction from China, which saw it conduct days of live-fire military drills around the island that continued Monday.

Hong Kong fell with little excitement generated by news that the city will cut the amount of time that incoming travellers spend in hotel quarantine.

Singapore, Taipei, Bangkok, Jakarta and Wellington were also down, but Tokyo, Sydney, Seoul, Mumbai and Manila edged up.

Shanghai was boosted by better-than-expected Chinese trade data, though the gains were tempered by fresh worries about Covid-19 lockdowns in the country, which threaten economic recovery.

London, Frankfurt and Paris rose at the open.

The prospect of higher interest rates sent the dollar surging, and it held on to those gains in Asia.

Oil rose, but bets on a recession across leading economies continued to fuel concerns about demand-- figures last week indicated that Americans were driving less now than in summer 2020, at the height of the pandemic.

A rise in US stockpiles was partly responsible for a 10 per cent drop in the commodity last week, pushing WTI below $90 for the first time since February.

Both main contracts have lost all the gains seen in the wake of Russia's war with Ukraine, which led the United States and Europe to ban imports of Russian crude, hammering already thin supplies.

Fresh talks on Iran's nuclear programme were being followed.

"The resumption of Iran nuclear talks... is one potential downside risk for the oil price, given the ability of the country to quickly ramp up production if a deal is struck," said OANDA's Craig Erlam.

"Not to mention its reportedly large oil and gas reserves. A deal could apparently be struck within days, although we have heard that a lot at times this year," he concluded.

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