By Wayne Cole
SYDNEY (Reuters) – Global stocks slid broadly on Monday while the dollar hit more than two-year peaks in the wake of an unambiguously strong payrolls report that pushed up bond yields and tested lofty equity valuations just as the earnings season gets under way.
European shares were set for a negative open, with EUROSTOXX 50 futures easing 0.3% and FTSE futures down 0.2%. DAX futures fell 0.2%.
The hawkish jolt from U.S. jobs also raised the stakes in relation to consumer price figures on Wednesday where any rise in the core greater than the forecast 0.2% would threaten to close the door on easing altogether.
Not helping was a spike in oil prices to four-month highs amid signs of weaker crude shipments from Russia as Washington stepped up sanctions on the country.
Data also showed China’s export growth picked up steam in December, while imports recovered, as the world’s No. 2 economy braces for mounting trade risks with the incoming U.S. administration.
Markets have already scaled back expectations for Federal Reserve rate cuts to just 27 basis points for all of 2025, with the Fed now seen cutting to only around 4.0% compared to the 3.0% many had hoped for this time last year.
“After a very strong jobs report, we think the cutting cycle is over,” declared Aditya Bhave, deputy chief U.S. economist at BofA. “Inflation is stuck above target, with upside risks.”
“The conversation should move to hikes, which could be in play if y/y core PCE exceeds 3% and inflation expectations de-anchor,” he added, referring to the Fed’s favoured personal consumption expenditure measure of prices.
At least five Fed officials are on the docket to speak this week and offer their reaction to the jobs surprise, with the influential Federal Reserve Bank of New York President John Williams appearing on Wednesday.
The sea change on rates lifted yields on 10-year Treasuries to 14-month peaks of 4.79%.
Higher yields on risk-free bonds raise the discounting bar for corporate earnings and make debt relatively more attractive compared to equities, cash, property and commodities.
They also raise borrowing costs for businesses and consumers, and that is before President-elect Donald Trump’s proposed tariffs inflate import prices.
This could test the optimism around corporate earnings as the season kicks off on Wednesday with the major banks including Citigroup (NYSE:C), Goldman Sachs and JPMorgan.
BEARS SLATHER OVER STERLING
S&P 500 futures fell 0.4%, and Nasdaq futures 0.6%, adding to Friday’s pullback.
A holiday in Japan made for thin trading on Monday and MSCI’s broadest index of Asia-Pacific shares outside Japan slid 1.6%.
While the Nikkei was shut, futures traded down sharply at 38,430 compared to a cash close of 39,190.
South Korean stocks eased 1.0%, with the political situation still in flux as a Constitutional Court hearing begins on Tuesday to decide whether impeached president, Yoon Suk Yeol, will be removed from office or reinstated.
Chinese blue chips were off 0.3%, as data showed exports rose a surprisingly steep 10.7% and imports added 1%.
The performance was almost too strong given it swelled the December surplus with the U.S. to $105 billion and provided ammunition to those calling for harsh tariffs on Chinese goods.
China’s central bank also stepped up efforts to defend a weakening yuan by relaxing rules to allow more offshore borrowing and sending verbal warnings on the currency.
Figures for Chinese gross domestic product, retail sales and industrial output are out on Friday.
The inexorable rise in Treasury yields has boosted the dollar across the board and seen the euro fall for eight weeks straight to sit at $1.02075, its lowest since November 2022. The dollar index added 0.2% to 108.90. [USD/]
Sterling slid 0.5% to another 14-month low of $1.2128, with sentiment soured by a recent rout in the gilt market on concerns the Labour government would have to borrow more to fund spending pledges. [GBP/]
British finance minister Rachel Reeves on Saturday vowed she would act to ensure the government’s fiscal rules were met.
The dollar did ease a touch to 157.35 yen, off a recent six-month top of 158.88, amid reports the Bank of Japan might revise up its inflation forecasts this month as a prelude to hiking rates again.
Gold prices steadied at $2,688 an ounce , having proven surprisingly resilient in the face of a stronger dollar and higher bond yields.[GOL/]
Oil prices continued to climb on supply concerns as Russia’s seaborne exports hit their lowest since August 2023, even before the latest round of U.S. sanctions. [O/R]
Brent jumped $1.38 to $81.14 a barrel, while U.S. crude surged $1.41 to $77.97 per barrel.
