Nikkei jumps 2% as weak US jobs report cools Fed hike bets

Asian stocks climbed Monday, with Japan's Nikkei 225 rising about 2%, after a weak US jobs report eased expectations for a September Federal Reserve rate increase.

"A jobs report this weak, layered on top of two months of substantial downward revisions, makes a hike next month almost impossible to justify," said Nigel Green, chief executive of deVere Group.

South Korea's KOSPI added 1.1%, while MSCI's broadest gauge of Asia-Pacific shares outside Japan gained 0.8%. The advance followed a US Labor Department report showing nonfarm payrolls fell by 23,000 in July, missing the roughly 80,000 gain economists expected, with May and June figures revised down by a combined 103,000 jobs. Rate futures now price a 43.9% chance of Fed tightening in September, down from 57% before the data, according to LSEG.

The repricing gives Asian equities room to extend a recovery that began Friday, when the S&P 500 rose 0.6% to 7,758 and the Nasdaq jumped 1.3% to 26,691. The Dow Jones Industrial Average added 0.3% to 54,037, capping a week in which the Nasdaq climbed about 5% and the S&P 500 gained nearly 3.5%, their best weekly performance since April. Investors now turn to US consumer price data due this week, which will shape whether the Fed holds its target range at 3.5% to 3.75% at the September meeting.

Friday's gains were led by software and chipmakers, with the S&P 500 software and services index rising 1.5% and the Philadelphia semiconductor index adding about 2.3%. Atlassian jumped 30.2% after beating fourth-quarter revenue estimates, while Microchip Technology gained 13.8%.

Oil Climbs as Hormuz Uncertainty Persists

Crude prices moved higher Monday on renewed uncertainty around the Strait of Hormuz, tempering some of the risk appetite that lifted equities. The advance in oil, which had fallen about 20% over the prior fortnight on hopes of a US-Iran peace deal, keeps inflation concerns in focus even as the labor market cools. The US Dollar Index hovered near a six-week low, adding to the supportive backdrop for regional currencies and risk assets.

Fed Path Hinges on CPI

The July jobs report showed the unemployment rate edged down to 4.1% from 4.2%, though the decline reflected workers leaving the labor force rather than stronger hiring. Treasury yields moved sharply lower after the release, supporting growth and technology shares. The personal consumption expenditures price index rose 3.7% year-on-year in June, still above the Fed's 2% target, leaving the central bank's September decision dependent on incoming inflation data.

Last week, the Federal Open Market Committee voted to hold the federal funds target range steady at 3.5% to 3.75%, with three officials dissenting in favor of a hike. Richmond Fed President Thomas Barkin said the report was consistent with his view of the labor market as neither loose nor tight, while Omair Sharif, president of forecasting firm Inflation Insights, cautioned that officials believe the breakeven pace of job gains is fairly low, which could temper the impact of the weak hiring data on the case for a stable labor market.

With the Fed's next decision set for September, the path for Asian equities hinges on whether inflation data confirms the cooling in the labor market. A softer CPI print would reinforce expectations that the central bank has finished tightening, supporting further gains in regional benchmarks, while a hot reading could revive hike bets and pressure currencies across the region.

This article is for informational purposes only and does not constitute investment advice.