Markets Rally as Fed Rate Hike Expectations Dim

Global markets kicked off the week on a positive note, with stocks rising and the US dollar weakening as investors scaled back expectations for aggressive interest rate hikes by the Federal Reserve. The shift in sentiment came after US jobs data showed slower-than-expected growth in September, along with significant downward revisions for the previous two months. This reduced the likelihood of another rate hike this month, with the probability dropping to 22% from 64% a week earlier, according to the CME FedWatch tool.

Asian markets saw gains early on Monday, with Japan's Nikkei climbing 2% and Australian stocks adding 0.5%. MSCI's index of Asia-Pacific shares outside Japan also ticked up 0.15%. Meanwhile, futures for the Nasdaq and S&P 500 advanced 0.3% and 0.1%, respectively, while EUROSTOXX 50 and FTSE futures rose 0.3% and 0.4%. In Brazil, markets were poised for a jump later in the day following the presidential election results.

Bonds, which had experienced a recent selloff, stabilized on Monday. The yield on 10-year US Treasury notes slightly retreated to 5.2643%, while two-year yields stood at 4.8143%. Despite the slight decline, yields closed higher on Friday as the jobs report did not rule out further Fed rate hikes in the coming months. Cedric Lam, a senior investment strategist at Standard Chartered, noted that while US data showed softer-than-expected inflation, market technicals were temporarily delaying a move lower in bond yields.

The US dollar weakened against major currencies due to reduced Fed hike expectations. The euro bounced from a 17-month low to $1.1243, and sterling ticked slightly higher to $1.3241. Against the yen, the greenback was down marginally at 157.81. In commodities, oil prices remained elevated after Yemen's Houthis launched attacks on Saudi Aramco sites, with Brent crude futures little changed at $102.20 per barrel and US crude at $90.75. Spot gold rose 0.3% to $4,154.32 an ounce.