Asian shares got off to a subdued start on Monday, with the dollar holding firm after a shocking US jobs report toppled talk of a recession but also supported the case for further sharp interest rate hikes.

Markets were quick to price in a roughly 70% chance that the Fed will raise rates by 75 basis points in September, sending the two-year yield up 20 basis points on Friday and inverting the curve further. The heavy data will only increase the risk of Wednesday’s US consumer price report for June, which could lead to a slight pullback in headline growth but a further acceleration in core inflation.

“Despite lacklustre economic growth, with CPI expected to rise 0.2% month-on-month in July, the Fed is likely to raise policy rates by 75 basis points at its September meeting,” said Bruce Kasman, head of economic research at JPMorgan.

Risks plagued stocks, with S&P 500 futures and Nasdaq futures down 0.3% in early trade. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2% after three straight sessions of gains. Japan’s Nikkei lost 0.3%, and South Korea’s index fell 0.4%.

There was little apparent market reaction to the news that the US Senate passed a $430 billion bill to tackle climate change on Sunday.

“These changes appear unlikely to significantly alter the net fiscal impact of the law, which could be below 0.1% of GDP over the next few years as new spending and new taxes are roughly offset,” said Goldman Sachs analyst Sachs.”

The two-year Treasury yield rose 3.24%, 40 basis points above the 10-year yield. Bonds also saw safe-haven buying as China conducted four-day military exercises in Taiwan, hit by Beijing’s threat to use force against the island.
Exports unexpectedly picked up in July, rising 18%, while imports rose just 2.3%, Chinese data released over the weekend showed. A jobs boom and rising yields boosted the dollar, which rose 0.8% against a basket of currencies to 106.64 on Friday.

Alan Ruskin, global head of G10 FX strategy at Deutsche Bank, said: “This key data point is just a million miles away from the current recession, both in terms of employment changes and potential unemployment.”

“Data like this would further any idea of ‘US exceptionalism and would be very positive for the dollar against all currencies.” USD/JPY held on to $135.26 after gaining 1.6% on Friday, while the euro struggled near $1.01, not far from chart support at $1.009.

News that Moody’s downgrading Italy’s negative outlook did not help the single currency as Prime Minister Mario Draghi‘s resignation shook the country’s political landscape. The dollar’s gains were a setback for gold, although it managed to bounce back from Friday’s lows to $1,773. Oil prices have continued to retreat recently after their worst week since April on concerns that global demand will stagnate as central banks continue to tighten policy. Brent crude fell 97 cents to $93.95, while US crude fell 89 cents to $88.12 a barrel.