Asian Shares Muted and Dollar Strong Amidst Expectations of Rate Rise

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Asian shares were relatively quiet on Monday while the dollar remained buoyant on the back of strong US jobs data. US nonfarm payrolls increased by 236,000 jobs last month, just shy of the 239,000 expected by economists. The figures confirmed a tight labour market, which has raised expectations that the Federal Reserve will raise interest rates at its next meeting in May. Markets have since increased the odds of a rate rise to 66%, up from 49.2% prior to the data's release. However, annual wage gains have slowed, but remain too high to be consistent with the Fed's 2% inflation target.

China's shares fell on Monday amid rising geopolitical tensions around the Taiwan Strait. China announced three days of drills on Saturday, with its military carrying out aerial and naval blockade exercises around Taiwan. A Chinese aircraft carrier joined in the combat patrols as Taiwan reported another surge of warplanes near the island. This has caused tensions to rise, with investors becoming increasingly concerned about the potential for conflict between the two countries.

Investor focus will now turn to the inflation report due on Wednesday, which will shape the Fed's battle against prices. Minutes of the central bank's last meeting in March are also scheduled to be released on the same day. While some analysts have predicted a disconnect between the Fed's likely path and market expectations, with high inflation and a still-strong labour market keeping cuts unlikely, others see persistently too-strong inflation as leading to further hikes. Citi expects three further 25 basis point rate hikes.

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