Markets rally as weak US jobs data fuels Fed easing hopes

Equities stage comeback as investors buy the dip

​Friday's shock US jobs report has provided the catalyst for a market rebound, with equity futures pointing higher across the board. The disappointing payrolls data has shifted the narrative from concerns about a resilient US economy to relief that monetary policy may turn more accommodative.

​US equity futures gained ground in early Asian trading, suggesting Wall Street will attempt to recover from last week's losses. The weak employment data has given investors confidence that the Federal Reserve (Fed) will be forced to act more aggressively on interest rates.

​European futures are following suit, with traders betting that synchronised global easing will provide support for risk assets. The shift in sentiment is palpable, with investors now viewing economic weakness as potentially positive for markets rather than a cause for concern.

​Treasury yields collapse as rate cut expectations surge

​The bond market reaction to Friday's payrolls data was nothing short of dramatic. Two-year Treasury yields plunged by 25 basis points in the largest single-day decline for over a year, as traders rushed to price in more aggressive Fed action.

​Fed funds futures now show more than 100 basis points of rate cuts expected by mid-2026, a significant shift from the more cautious outlook that had prevailed just days earlier. Markets are now pricing in an 85% probability of a September rate cut, up sharply from previous expectations.

​The yield curve has steepened considerably as longer-term rates have fallen alongside shorter-term ones, though not quite as dramatically. This suggests markets believe the Fed will need to act quickly to support an economy that may be showing more weakness than previously thought.

​Dollar steadies after sharp Friday decline

​The dollar index experienced one of its sharpest single-day declines in months on Friday, but has found some stability in Asian trading hours. The greenback's retreat reflects growing doubts about US economic outperformance, which had been a key driver of US dollar strength.

​The euro has gained ground against the dollar, though the single currency faces its own challenges with European growth concerns mounting. Sterling has held relatively steady around $1.33, supported by expectations that the Bank of England (BoE) may not cut rates as aggressively as the Fed.

​Trump administration moves raise policy credibility concerns

​Markets are digesting news of significant personnel changes at key economic institutions, including the firing of the head of the Bureau of Labor Statistics. These moves are raising questions about the independence of economic data collection and monetary policy formation.

​The announcement that Trump will appoint a new Fed governor adds another layer of uncertainty to monetary policy expectations. Markets are trying to assess whether these changes could lead to more politicised economic policy or data manipulation concerns.

​Asian markets mixed as commodities face pressure

​Asian equity markets showed a mixed performance overnight, with MSCI Asia ex-Japan rising 0.7% led by South Korean shares. The gains reflect the global risk-on sentiment following the US jobs data and expectations of easier monetary policy.

​However, Japan's Nikkei 225 lagged behind its regional peers, weighed down by Japanese yen strength and concerns about the domestic economic outlook. The Japanese market's underperformance highlights how currency movements can quickly change the relative attractiveness of different regional markets.

​In commodities, Brent crude edged lower to $69.52 after OPEC+ agreed to reverse some of last year's supply cuts. The decision to increase output by 547,000 barrels per day from September is stoking fresh concerns about global oversupply.

​Gold trading saw initial gains on Friday's dollar weakness, though the precious metal has pulled back slightly in Asian hours. The metal remains supported by expectations of lower real interest rates as Fed policy shifts.

​Bank of England decision adds UK focus

​Thursday's BoE meeting has taken on added significance following the shift in global monetary policy expectations. Markets are now pricing in an 87% probability of a 25 basis point cut, with expectations for two more reductions by mid-2026.

​Sterling has held relatively steady near $1.33 despite the increased expectations for BoE easing. The pound's resilience suggests traders believe UK rate cuts may not be as aggressive as those expected from the Fed, maintaining some interest rate differential.

​The Monetary Policy Committee remains split on the appropriate course of action, with some members favouring a more cautious approach to rate cuts. This division could lead to interesting dynamics in the decision and subsequent communications from the central bank.