Asian Stocks Rally on Fed Hike Bets Fading

Asian stocks surged at the start of the week as investors reacted to a weaker-than-expected US jobs report, lowering expectations for a Federal Reserve interest rate hike in October. Japan's Nikkei 225 led the rally, climbing 2.5% above 70,000 to a three-month high, while Taiwan's Taiex gained about 2.6%. The MSCI Asia-Pacific index outside Japan rose roughly 0.9%, though trading volumes were lower due to holidays in mainland China and South Korea.

The US employment report, which showed nonfarm payrolls rising by just 29,000 in September, well below expectations, shifted market sentiment. The unemployment rate edged up to 4.2%, and markets now assign only a 22% chance to an October Fed hike, down from 64% a week earlier. This relief bolstered rate-sensitive technology and industrial stocks in Japan, with Advantest and electronics/machinery shares rebounding. Taiwan's semiconductor giants, including TSMC and MediaTek, also saw gains, keeping the AI trade at the center of Asia's growth story.

Despite the rally, challenges remain. The US 10-year Treasury yield stayed near 5.26%, a level that raises financing costs across the region. Oil prices, though slightly lower, remained above $100 per barrel, while European fiscal concerns added volatility. Analysts warned that persistent inflation could still bring another Fed hike later this year, and yields staying high could pressure semiconductor valuations. The next key test will come from US services data and the Fed's September meeting minutes.