Asian Stocks Rally as Fed Hike Bets Fade

Asian stocks surged on Monday following a weaker-than-expected US jobs report, which significantly reduced the likelihood of a Federal Reserve rate hike in October. The Nikkei 225 in Japan jumped 2.5%, surpassing 70,000 for the first time in three months, led by gains in Advantest and other electronics and machinery shares. Taiwan’s Taiex also gained about 2.6%, with TSMC and other semiconductor stocks contributing to the rally. The broader MSCI Asia-Pacific index outside Japan rose roughly 0.9%, though trading volumes were thinner due to holidays in mainland China and South Korea.

The shift in market sentiment came after the US nonfarm payrolls report showed just 29,000 jobs added in September, far below expectations of around 90,000. This data, along with downward revisions for July and August, pushed the unemployment rate up to 4.2%. As a result, the probability of an October Fed rate hike dropped from 64% to about 22%, offering relief to rate-sensitive growth stocks in Asia.

Despite the rally, challenges remain. The US 10-year Treasury yield remains near 5.26%, a level that raises financing costs across the region. Oil prices also pose a constraint, though they slipped slightly after the G7 agreed to release emergency crude and diesel stocks. Additionally, Europe’s fiscal concerns, particularly in France, are adding to market volatility.

Analysts warn that the rally may not be sustainable if US inflation re-accelerates or if the Fed signals a return to rate hikes. For Japan, the key risk is higher yields reversing the rebound in tech and industrial stocks. In Taiwan, semiconductor valuations could come under pressure if yields remain high or oil prices spike further.