Asian markets stumbled out of the gates Monday, extending last week's grim start to the year, after a forecast-busting US jobs report further dampened hopes for an early interest rate cut.
The keenly awaited non-farm payrolls data Friday showed the world's number one economy remains resilient despite interest rates sitting at a two-decade high and inflation still well above the Federal Reserve's target.
However, they dealt another blow to expectations the central bank will begin to normalise monetary policy in the next few months.
Equities ended 2023 with a surge as traders bet on a string of reductions this year thanks to falling inflation and a softening of the labour market.
But the release of minutes last week from the Fed's December meeting showed decision-makers were happy to keep rates elevated for some time to make sure they have prices under control.
Policymakers have signalled 75 basis points of cuts this year, but markets have priced in as much as 150 points, leaving investors open to disappointment.
"The first week of 2024 brought contradictory data signals," said Barclays economists including Christian Keller.
"Solid US jobs growth, cautious Fed minutes and a still robust US economy raise doubts about markets' aggressive Fed rate-cut expectations."
However, a sharp slowdown in the key services sector provided some solace for investors as it suggested the economy was slowing, giving the Fed wiggle room.
Bloomberg said swaps traders were still eyeing about 140 basis points of easing this year, with about a two-thirds chance of a March move.
All three main US indexes ended slightly higher but that optimism was not apparent in Asian trading Monday, with Sydney, Seoul, Singapore and Wellington all in the red. Tokyo was closed for a holiday.
Hong Kong and Shanghai led the retreat, with Saxo's Redmond Wong saying that while valuations were increasingly attractive "prevailing market sentiments remain sluggish, and the absence of catalysts suggests a lack of potential for a near-term rally".
Attention now turns to the release later in the week of US consumer price figures.
"For those seeking macroeconomic clarity, the situation remains pretty elusive," said SPI Asset Management's Stephen Innes.
"While there is a plausible argument that the US labour market has effectively normalised, uncertainties persist in a market characterised by ongoing concerns about an indeterminate macroeconomic landscape amid the long wait for a recession that may or may not ever arrive -- hinting at the potential for a volatile year ahead."
Hong Kong - Hang Seng Index: DOWN 1.5 percent at 16,286.66
Shanghai - Composite: DOWN 1.0 percent at 2,900.65
Tokyo - Nikkei 225: Closed for a holiday
Dollar/yen: DOWN at 144.50 yen from 144.69 yen on Friday
Euro/dollar: UP at $1.0944 from $1.0942
Pound/dollar: DOWN at $1.2716 from $1.2718
Euro/pound: UP at 86.05 pence from 86.01 pence
West Texas Intermediate: DOWN 0.8 percent at $73.20 per barrel
Brent North Sea Crude: DOWN 0.8 percent at $78.13 per barrel
New York - Dow: UP 0.1 percent at 37,466.11 (close)
London - FTSE 100: DOWN 0.4 percent at 7,689.61 (close)
