Markets fall after US jobs figures raise prospect of rate hike

Asian stocks buckled while the dollar held firm on Monday after strong US jobs data fanned expectations that the US Federal Reserve may raise interest rates sooner than previously thought.

Stock markets across Asia, including Japan's Nikkei, Australia, Malaysia and Indonesia fell broadly, with MSCI's broadest index of Asia-Pacific shares outside Japan dropping 1.2 per cent.

European stock markets were expected to do likewise, with financial spreadbetters expecting Britain’s FTSE 100 to open down 0.5 per cent, Germany’s DAX off 0.5 per cent, and France’s CAC 40 to ease 0.4 per cent.

US non-farm payrolls (NFP) data on Friday showed the unemployment rate hit a 6-year low of 5.5 per cent in February.

Wage gains were only slight, yet the data stoked expectations that the Fed was now likely to drop a reference to 'patience' on the timing of a rate hike at its next policy meeting on March 18th, thus opening the door for a June rate rise. While the futures markets were quick to price in improved odds of the Federal Reserve raising rates in June or September, analysts pointed to historically low inflation in the United States and slowing growth as reasons to be worried.

"The spectre is that of a Fed hiking rates into an economic slowdown, and a higher dollar and higher real rates taking further steam out of the economy. Who should cheer that?" analysts at Reorient Research said in a note. Analysts at Mizuho Bank said job growth was still uneven across sectors and wage inflation was soft, hence the February job data was not an "unequivocally green light" for a June rate rise. "The Fed will not jump the gun on this NFP read, and will be willing to wait, but we will not wager on unconditional patience indefinitely," Mizuho said.

The US data appeared to have overshadowed other data including figures from China on Sunday that showed a surge in exports in February.

But analysts also warned that the Chinese data was likely to be distorted due to the timing of the Lunar New Year.