Asian Markets Rebound as Fed Rate-Cut Bets Strengthen After U.S. Jobs Miss

Introduction: Risk Sentiment Revives in Asia After Wall Street Weakness

Asian equity markets found a firmer footing on Monday, August 4, 2025, following a turbulent close to last week driven by alarming U.S. labor market data. A sharp downward revision in job creation figures has significantly altered the global rate outlook, fueling expectations that the Federal Reserve may be compelled to cut interest rates as soon as September.

This macro shift sparked a broad rally in risk assets, with Asian indices recovering modest ground. Investors are now recalibrating their strategies amid softening Treasury yields, a weakening U.S. dollar, and growing demand for defensive assets like gold.

U.S. Labor Market Shock Drives Rate Cut Repricing

The catalyst behind the sudden shift in sentiment was the release of U.S. employment data late Friday. Non-farm payrolls came in below consensus, but more notably, the three-month average job creation figure dropped to just 35,000 — its lowest reading since early 2020. This underscored growing cracks in the U.S. labor market and led to an immediate repricing in the interest rate markets.

Futures traders now assign an 85–90% probability of a Federal Reserve rate cut at the September meeting, with several desks projecting up to 100 basis points of cumulative easing by the end of 2025. The two-year U.S. Treasury yield dropped 15 basis points, while the benchmark 10-year yield declined by over 20 basis points in early Monday trading.

Asian Market Performance: Modest Gains and Defensive Rotation

Despite Friday’s sell-off on Wall Street, most Asian markets opened higher:

Hang Seng Index (Hong Kong): +0.6%, led by gains in property and AI tech stocks.
Shanghai Composite (China): +0.4%, rebounding despite persistent weakness in domestic demand.
Nikkei 225 (Japan): -1.7%, under pressure from a strengthening yen and deflation concerns.
Kospi (South Korea): +0.5%, helped by resilient semiconductor demand.

The broader MSCI Asia-Pacific Index (ex-Japan) rose by 0.7%, reversing losses from Friday’s U.S.-led rout. Investors are cautiously optimistic, with central banks in Asia expected to follow the Fed’s lead should global monetary easing resume.

U.S. Dollar Weakens as Safe-Haven Demand Softens

The U.S. Dollar Index (DXY) fell to 101.2, marking a 1.5% weekly decline — the sharpest drop in over a year. Investors are unwinding long-dollar positions in favor of riskier assets, particularly emerging market currencies and commodities.

USD/JPY: Fell to 140.8 as the yen gained strength.
AUD/USD: Rose above 0.6750 amid commodity-linked optimism.
EUR/USD: Climbed to 1.1050 on dollar weakness.

Forex markets are now increasingly aligned with the view that the Fed is likely finished with rate hikes, and that a new easing cycle may commence sooner than expected.

Commodity Markets: Oil Slips, Gold Holds Gains

Commodities painted a mixed picture:

Crude Oil: Brent futures slipped 0.6% to $83.10 per barrel after OPEC+ approved additional production of 547,000 barrels per day (bpd) for September. This offset geopolitical supply concerns from West Africa and the Middle East.
Gold: Held firm at $2,361/oz, driven by falling yields and increased haven demand.
Copper and Iron Ore: Rebounded slightly on Chinese stimulus hopes but remain range-bound.

The softer dollar provided some relief to commodity-importing economies, although oil traders remain wary of oversupply risks amid sluggish global demand.

Global Outlook: From Rate Hikes to Rate Cuts

This week’s economic calendar includes key catalysts such as U.S. ISM Services PMI, jobless claims, and corporate earnings from Amazon, Disney, and Uber. Market focus will remain squarely on central bank rhetoric, especially from the Fed and ECB, as traders gauge the timing and magnitude of possible rate cuts.

Asian central banks, including the Reserve Bank of India (RBI) and the Bank of Korea (BoK), are also expected to adopt a more dovish tone in upcoming meetings.

Conclusion: Cautious Optimism as Markets Shift From Inflation to Growth Fears

The shift in global market psychology is palpable. What started as fear over sticky inflation is now morphing into anxiety over growth and employment. As central banks soften their stance, investors are adjusting portfolios toward rate-sensitive assets, growth stocks, and defensive commodities.

Monday’s rebound in Asia may be modest, but it sets the stage for broader recovery — if monetary policy delivers.