Morning Bid: Markets mull potential US 'no landing'

By Jamie McGeever

(Reuters) - A look at the day ahead in Asian markets.

Trading in Asia kicks off on Monday with the global macro and market landscape suddenly appearing very different from how it looked on Friday, thanks to a set of U.S. employment figures that not even the most bullish of forecasters expected.

The September non-farm payrolls report on Friday was unequivocally strong on all fronts, and throws into doubt the projected path for U.S. interest rates that investors - and perhaps the Fed too - had begun to settle on.

The immediate shift in U.S. rate futures markets is clear - a 50 basis point rate cut next month is now completely off the table, and implied pricing is now aligned with Fed Chair Jerome Powell's baseline case of a quarter-point cut at each of the next two meetings.

Not only that, the total amount of expected Fed rate cuts over the easing cycle has also been scaled back, pointing to a higher projected "terminal" rate in 2026 of around 3.25%. Traders could continue to raise that higher this week.

Soft landing? This might apply to inflation, which still appears to be cooling towards the Fed's 2% target, but not to the economy. With a labor market this hot, a 'no landing' scenario rather than a soft landing is looking more likely.

The headline details of the report bear repeating - the 254,000 payrolls figure was higher than all 73 forecasts in a Reuters poll of economists, and only three out of 56 respondents accurately predicted the unemployment rate falling to 4.1%.

The U.S. dollar, bond yields and stocks all leaped higher on Friday, reflecting a broad-based vote of investor confidence in the U.S. economy.

The dollar index rose more than 2% on the week, its best week in more than two years; Brent crude oil futures rose 9% on the week for their best week since January 2023; and the Dow ended at a record closing high.

Revived animal spirits should boost investor sentiment in Asia on Monday, and Nikkei futures point to a rise of around 2.5% at the open in Japan. However, tighter financial conditions via the notable spikes higher in Treasury yields, the dollar and oil warrant caution.

Asia's calendar on Monday sees the release of September inflation figures from Thailand. Annual headline inflation is expected to be 0.8%, well up from August's reading.

Thailand's inflation target range is 1% to 3%, and inflation has come in below that lower band every single month since April last year except May this year.

The finance minister and central bank governor met last week and will meet later this month to discuss the inflation target. The central bank has resisted repeated calls from the government to cut interest rates.

Here are key developments that could provide more direction to Asian markets on Monday:

- Thailand inflation (September)

- China FX reserves (September)

- Japan FX reserves (September)

(Reporting by Jamie McGeever)