By Amanda Cooper
LONDON (Reuters) – Global stocks fell on Monday while the dollar hit 26-month peaks after a U.S. jobs report that prompted investors to question if interest rates will fall at all this year.
A surge in energy prices has added to concern about steadily rising inflation, with crude oil topping $80 a barrel on the back of signs that Russian exports are falling as Washington has stepped up sanctions on the country.
European natural gas prices have risen by 4% in the last month alone following a cold snap and after Ukraine’s decision to halt supplies of Russian gas deliveries via pipeline.
Data also showed Chinese export growth gathered pace in December while imports recovered as the world’s second-largest economy braces for mounting trade risks with the incoming U.S. administration.
In Europe, equities fell for a second day, with the STOXX 600 losing 0.9% and Germany’s DAX down 0.7%. The FTSE 100 dipped by only 0.4%, supported by weakness in the pound, which was once again in focus as UK borrowing costs continued to rise.
Markets show traders have already scaled back expectations for Federal Reserve rate cuts to only 25 basis points (bps) for all of 2025, down from closer to 45 bps before Friday’s jobs data.
“After a very strong jobs report, we think the cutting cycle is over,” said Aditya Bhave, deputy chief U.S. economist at BofA. “Inflation is stuck above target, with upside risks.”
He said debate in the market could switch to when the Fed might be likely to raise rates, particularly if the core personal consumption expenditures index, which excludes food and energy prices, were to move above 3% and market-based inflation expectations picked up.
Yields on 10-year Treasuries traded around a 14-month peak of 4.79%.
Wednesday’s consumer price index (CPI) report could move markets more than usual, given how close investors are to ruling out any rate cuts this year.
“As the weather warms up a bit, whether the deep freeze in bond markets continues may be determined by how US CPI on Wednesday materialises after Friday’s blockbuster payrolls report,” said Deutsche Bank strategist Jim Reid.
Higher bond yields raise the discounting bar for corporate earnings and make debt relatively more attractive in comparison with equities, cash, property and commodities.
But they also raise borrowing costs for businesses and consumers. Part of the increase in yields over the past few weeks has been driven by an expectation that U.S. President-elect Donald Trump’s proposed tariffs will raise import prices.
This could test optimism around corporate earnings as first-quarter earnings season kicks off on Wednesday with the major banks including Citigroup, Goldman Sachs and JPMorgan.
MORE LOSSES AHEAD
S&P 500 futures fell 0.8% and Nasdaq futures dropped 1.2%, suggesting more losses ahead after Wall Street’s Friday slide.
In Asia, a holiday in Japan made for thin trading on Monday. Chinese blue chips fell 0.3% as data showed exports rose a surprisingly steep 10.7% and imports added 1% last month, adding ammunition to those calling for harsh tariffs on Chinese goods.
The 45 bps rise in Treasury yields in the past two months has pushed the dollar to its highest against a basket of currencies since November 2022.
Sterling has been particularly hard hit, down 4.4% in that time. On Monday the pound was down 0.6% at $1.213, its weakest since early November 2023.
The global selloff in bonds has battered the UK gilt market, sending long-term yields to their highest since 1998, with concerns mounting over increased government borrowing to meet budget commitments.
British finance minister Rachel Reeves said on Saturday that she would act to ensure the government’s fiscal rules were met.
The euro was down 0.5% at $1.01955 after touching its weakest since November 2022 at $1.0177.
The dollar eased by 0.3% against the yen to 157.245 but remained near six-month highs.
Oil prices rose sharply after a drop in Russia’s seaborne exports to their lowest since August 2023 fuelled supply concerns even before the latest round of U.S. sanctions. Brent crude futures were up 1.83% at $81.23 a barrel.
(Reporting by Amanda Cooper; Additional reporting by Wayne Cole in Sydney and Rae Wee in Singapore; Editing by Angus MacSwan and David Goodman)
