Attention turns to US inflation data this week after a forecast-beating jobs report put fresh pressure on the Federal Reserve to continue with its aggressive pace of interest rate hikes

Hong Kong (AFP) - Markets struggled Monday and the dollar held big gains as a blockbuster US jobs report ramped up bets that the Federal Reserve will announce more sharp interest rate hikes as it tries to tame runaway inflation.

While the employment reading – which was more than twice as high as expected – indicated the world’s top economy remained resilient despite rising prices and borrowing costs, it will complicate the bank’s plans to tighten monetary policy.

Traders have hoped that with several indicators pointing to a slowdown, including GDP figures showing a technical recession, policymakers could begin to ease back on their pace of rate hikes.

Now, speculation is growing that the Fed will have to announce a third successive 75 basis-point increase next month, particularly as officials have said their decisions will be data-dependent.

“Friday’s payroll report indicates an overheated labour market that continues to tighten further,” said SPI Asset Management’s Stephen Innes.

“Hence at minimum, the markets expect another 100 basis points of Fed funds rate increases over the next three meetings… with risks skewed towards significant increases.”

All eyes are now on the release this week of US July inflation data, which is expected to show a slight slowdown from June but still at four-decade highs.

The “report seems very unlikely to offer ‘compelling evidence’ of a slowdown needed for the Fed to pull away from its aggressive inflation-fighting mode.” Innes added.

The jobs figures left Wall Street’s main indexes mixed Friday, and Asia followed suit with markets fluctuating in early trade.

However, there was some relief that tensions had calmed since Nancy Pelosi’s visit to Taiwan last week sparked a furious reaction from China that saw it conduct days of live-fire military drills around the island, which contiued Monday.

Hong Kong fell with little excitement generated by news that the city will cut the amount of time incoming travellers must spend in hotel quarantine.

Singapore, Taipei, Bangkok, Jakarta and Wellington were also down, but Tokyo, Sydney, Seoul, Mumbai and Manila edged up.

Shanghai was boosted by better-than-expected Chinese trade data, though the gains were tempered by fresh worries about Covid lockdowns in the country that threaten the economic recovery.

London, Frankfurt and Paris rose at the open.

The prospect of higher interest rates sent the dollar surging, and it held on to those gains in Asia.

Oil rose but bets on a recession across leading economies continued to fuel concerns about demand – figures last week indicated Americans were driving less now than in summer 2020 at the height of the pandemic.

A rise in US stockpiles was partly responsible for a 10 percent drop in the commodity last week, pushing WTI below $90 for the first time since February.

Both main contracts have lost all the gains seen in the wake of Vladimir Putin’s invasion of Ukraine, which led the United States and Europe to ban imports of Russian crude, hammering already thin supplies.

Fresh talks on Iran’s nuclear programme were being followed.

“The resumption of Iran nuclear talks… is one potential downside risk for the oil price, given the ability of the country to quickly ramp up production if a deal is struck,” said OANDA’s Craig Erlam.

“Not to mention its reportedly large oil and gas reserves. A deal could apparently be struck within days, although we have heard that a lot at times this year.”

- Key figures at around 0720 GMT -

Tokyo - Nikkei 225: UP 0.3 percent at 28,249.24 (close)

Hong Kong - Hang Seng Index: DOWN 0.8 percent at 20,040.95

Shanghai - Composite: DOWN 0.3 percent at 3,236.93 (close)

London - FTSE 100: UP 0.5 percent at 7,480.08

Euro/dollar: DOWN at $1.0177 from $1.0184 Friday

Pound/dollar: UP at $1.2079 from $1.2075

Euro/pound: DOWN at 84.25 pence from 84.32 pence

Dollar/yen: UP at 135.37 yen from 135.00 yen

West Texas Intermediate: UP 0.9 percent at $89.78 per barrel

Brent North Sea crude: UP 0.8 percent at $95.71 per barrel

New York - Dow: UP 0.2 percent at 32,803.47 (close)