The past week saw global markets adjust expectations for the pace of interest rate cuts from major central banks, especially the Federal Reserve, following a much stronger than anticipated US jobs report on Friday. However, some of this repricing reversed early this week as disappointing fiscal stimulus measures from China and geopolitical tensions weighed on risk sentiment.

The US economy added 254,000 jobs in September, well above expectations, pushing the unemployment rate down to 4.1%. TThis "superb" report, as described by Chicago Fed President Charles Evans, led markets to reprice the likelihood of another 50 basis point cut from the Fed this year. The odds of a 50bp cut in November fell from around 35% to near zero, with a 25bp increment now fully priced in. However, lingering inflation concerns and an uptick in oil prices due to escalating tensions between Iran and Israel contributed to a rebound in yields early this week. The 10-year Treasury yield topped 4% for the first time since August.

The US economy added 254,000 jobs in September, well above the 159,000 expected, pushing the unemployment rate down to 4.1%. This "superb" report, as described by Chicago Fed President Charles Evans, led markets to reprice the likelihood of another 50 basis point cut from the Fed this year. The odds of a 50bp cut in November fell from around 35% to near zero, with a 25bp increment now fully priced in.

Equity markets seesawed, with US indices bouncing Friday on the strong jobs report but pulling back sharply Monday. The biggest move was in Hong Kong, where the Hang Seng plunged 9.4% after China's National Development and Reform Commission announced a smaller-than-expected 200 billion yuan ($28 billion) fiscal stimulus package, well short of the 3 trillion yuan markets had anticipated. Cyclical assets exposed to China were hit hard globally. 

In FX, the US dollar rally stalled as haven currencies like the Japanese yen and Swiss franc gained. The Australian dollar continued to weaken, falling another 0.25% to 0.674 USD, pressured by the disappointment over China's stimulus and broad risk aversion.

Locally, the NAB business survey showed a modest rise in business conditions and confidence in September from low levels, while the Westpac consumer confidence index hit a 2.5-year high, likely boosted by expectations for steady rates. The RBA minutes offered no major surprises, reiterating a balanced assessment of risks. Deputy Governor Howitt pushed back on inflation stickiness in a speech.

Focus now turns to the Reserve Bank of New Zealand, which is widely expected to deliver another 50bp rate cut today amid a negative output gap and weak labour market. Guidance on the future path of policy will be key. US CPI data Thursday and Fed minutes early Thursday (AEDT) will also be closely parsed for clues on the Fed outlook. 

While the strong US jobs numbers challenged overly dovish rate cut expectations last week, the pullback in risk assets to start this week highlights the fragility of the global growth picture and importance of continued policy support. Central bank divergence, geopolitical risks and China's recovery prospects are emerging as key themes driving markets.