Asian Stocks Rally Amid Rate Hike Worries as US Labor Market Strengthens

Asian equity benchmarks surged on Monday as investors weighed the strength of the US labor market against potential interest rate hikes. The Nikkei 225 jumped 2%, while South Korea's Kospi climbed 3% and the MSCI index of Asia-Pacific shares outside Japan added 0.9%. These gains followed a strong US payrolls report that indicated continued resilience in the global economy, but also increased expectations for a Federal Reserve rate hike on September 16.

The report showed a 58% probability of a rate hike on September 16 and a 70% chance by October. Investors are now focusing on the upcoming US consumer price index (CPI) report due on Friday, which could push Treasury yields higher if core prices rise above expectations.

Bruce Kasman, global head of economics at JPMorgan, expects core CPI to increase 0.21%, which would be soft enough to keep the Fed on hold for now. However, he also anticipates two more hikes from the European Central Bank and the Bank of Japan before year-end.