Global stocks and government bonds sank and the dollar strengthened on Monday, after last week’s stronger than expected US jobs report raised the likelihood of further interest rate increases.
Data released on Friday showed the US added 517,000 jobs in January, much higher than the 185,000 anticipated by Wall Street economists, while the unemployment rate fell to a 50-year low.
The figures weighed on financial markets at the end of last week and continued to do so on Monday. Wall Street’s blue-chip S&P 500 and the tech-heavy Nasdaq Composite both fell 0.6 per cent. US equities fell on Friday after the jobs report but posted a gain over the week as the Federal Reserve raised its main policy rate by only a quarter percentage point, the smallest amount since March.
“The US labour data shocked” and the number of jobs created “makes it more probable that the Fed will keep hiking”, said Steve Englander, a strategist at Standard Chartered. While a measure of the dollar’s strength against a basket of six other currencies added 0.4 per cent on Monday, Refinitiv data shows the currency has slipped 6.1 per cent over the past three months as US rate rises have slowed.
Englander said the jobs data on its own was unlikely to unwind the dollar-negative view but that “alarming inflation signals” when January’s numbers are released later this month might do the trick. Inflation declined for a sixth consecutive month in December, coming in at an annual rate of 6.5 per cent.
Government bonds in the US and Europe sold off along with equities. The yield on the benchmark 10-year Treasury rose 0.08 percentage points to 3.61 per cent following a 0.13 percentage point increase on Friday.
The yield on the 10-year German Bund added 0.09 percentage points to 2.28 per cent, reversing a decline last week.
Traders initially rushed into government bonds on hopes that the current cycle of rate rises may be nearing its end, even as the European Central Bank and the Bank of England last week raised rates by half a percentage point.
Europe’s region-wide Stoxx 600 fell 0.8 per cent, as did Germany’s Dax, with sentiment also eroded by weak December eurozone retail sales figures. London’s FTSE 100, which last week hit a record-high, fell 0.9 per cent.
Most Asian equities declined on Monday, as a January rally for Chinese equities fizzled out and heightened US-China tensions deflated sentiment. Hong Kong’s Hang Seng index fell 2 per cent, while China’s CSI 300 shed 1.3 per cent.
