HONG KONG, Jan 5 — Asian and European stocks struggled today after a bigger-than-expected rise in US private-sector jobs poured cold water on hopes for an interest rate cut in the next few months.

The tepid end to a tough week followed another insipid day on Wall Street amid concerns that an end-of-year rally may have gone ahead of itself, leading investors to pull out of some of the biggest gainers such as Apple and Amazon.

Data on Thursday from payroll firm ADP showed far more private-sector jobs were created last month than forecast and significantly more than in November.

While the figures also showed wage growth slowing, the reading reinforced the view that the labour market was still very tight and posed a threat to the Federal Reserve’s goal of bringing inflation down to its two per cent target. It is currently at 3.3 per cent.

That gave a jolt to optimism the central bank would cut interest rates as soon as the first quarter of this year, with Bloomberg News saying traders now see about a 65 per cent chance of that, compared with around 85 per cent last week.

"There was nothing within the data that would suggest any urgency from policymakers to begin normalising rates lower during the first quarter,” BMO Capital Markets’ Ian Lyngen said.

The figures came a day after minutes from the Fed’s December meeting showed officials expected to keep borrowing costs at a two-decade high for some time as they want to make sure they have inflation under control.

Attention now turns to the release later today of the closely watched non-farm payrolls report, which could play a major role in Fed decision-making.

"A too strong report could be a setback for stocks, aligning with expectations of rate cuts in the second half of 2024,” said SPI Asset Management’s Stephen Innes.

"If the report aligns with or falls slightly short of expectations, it may reinforce beliefs in an imminent rate cut, potentially sparking a rally. On the other hand, a significantly weaker reading could renew concerns about a looming recession.

"Hence, the fine line where the (jobs) report must land is not an especially ideal risk-reward setup.”

With expectations for an early cut waning, traders are cashing in their recent gains, dealing a blow to the Nasdaq, which fell for a fifth straight day yesterday — its worst run since December 2022 — as the tech sector comes under pressure.

The unease seeped into Asian and European trade, with most turning negative.

Hong Kong, Shanghai, Sydney, Seoul, Wellington, Taipei and Bangkok fell, while London, Paris and Frankfurt opened in the red.

Tokyo, Singapore, Manila, Mumbai and Jakarta rose.

The yen continued to weaken on expectations the Fed will not be hiking in the first quarter, while analysts said the New Year’s Day earthquake in Japan could also force the Bank of Japan to delay a tightening of monetary policy. — AFP