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  • Dampened Fed rate cut expectations are hurting Asian equities.  
  • US-Iran tensions could add to bearish tone around stocks.  

Asian shares are reporting losses this Monday morning on dampened expectations for the US Federal Reserve (Fed) to slash interest rates.  

Japan’s Nikkei is currently down 1% or 220 points at 21,520 and the Shanghai composite is shedding 2% or 67 points at 2943.  

Stocks in Australia and Hong Kong are also flashing red along with South Korea’s Kospi index.  

The US non-farm payrolls data released last Friday showed the economy added 224,000 jobs in June, beating the expected number of 165,000 jobs by a big margin.  

The above-forecast print lowered the odds of aggressive Fed rate cuts, sending the 10-year treasury yield back above 2%. Effectively the debate has now switched from a 25bps or 50bps rate cut to a 25bps cut or none, Rodrigo Catril, senior foreign-exchange strategist at National Australia Bank, wrote in a note, according to CNBC.  

Notably, markets are now pricing a 27 basis point cut in interest rates this month, down from 33 basis points seen before payrolls.  

The uptick in Treasury yields also lifted the US Dollar. The EUR/USD pair fell 80 pips to 1.1208 and the USD/JPY pair rose to 108.64, the highest level since June 18. As of writing, the Dollar Index, which tracks the value of the greenback against majors, is trading at the 50-day moving average of 97.25, having hit a high of 97.44 on Friday.  

Looking forward, the dampened Fed rate cut expectations could continue to weigh over equities along with the rising US-Iran tensions. On Sunday, Iran announced plans to boost its uranium enrichment above a cap a set by a landmark 2015 nuclear deal.