European stocks and US equity futures retreated as an unexpectedly strong US jobs report raised the prospect of more rate hikes from the Federal Reserve. Concern over US-China geopolitical tensions also weighed on sentiment.
(Bloomberg) — European stocks and US equity futures retreated as an unexpectedly strong US jobs report raised the prospect of more rate hikes from the Federal Reserve. Concern over US-China geopolitical tensions also weighed on sentiment.
The Stoxx Europe 600 index slid after closing Friday in a bull market, with the technology and real estate sectors leading the drop. Rothschild & Co. shares soared as much as 19% in Paris as a holding controlled by the Rothschild family plans to take the bank private. On Wall Street, contracts on the S&P 500 and the Nasdaq 100 both dropped by more than 0.6%.
The dollar climbed for a third day after a gauge of its strength rose more than 1% Friday, when figures showed a surge in payrolls and unemployment at a 53-year low. This points to persistent US inflation and bolsters the case for more rate increases.
“The state of the employment sector is a significant factor in the Federal Reserve’s decision-making process, and thus the number has certainly provided investors with another factor to consider when predicting the course of the Fed’s movements over the next couple of months,” economists at Rand Merchant Bank in Johannesburg said in a note.
An index of Asian equities also declined. Shares fell in Hong Kong and mainland China as tension with the US over a suspected spy balloon triggered fears of economic retaliation by the Biden administration after the US decided to postpone Secretary of State Antony Blinken’s upcoming trip to China.
In Japan, stocks climbed and the yen weakened after the Nikkei reported that the government had approached Bank of Japan Deputy Governor Masayoshi Amamiya about succeeding Haruhiko Kuroda as head of the central bank. While the Japanese government refuted the report, investors assume a greater likelihood of the current ultra-easy monetary policy enduring if one of its architects succeeds Kuroda.
Meanwhile, the robust US labor data on Friday “had serious implications for Fed policy — simply put, it confirms our long-standing belief that the Fed will have to go higher for longer than what optimistic market scenarios had priced in,” Win Thin, global head of currency strategy at Brown Brothers Harriman, wrote in a note. “We still have a ways to go to get to peak Fed Funds rate, and yet folks are still looking for second-half rate cuts in what would be an extremely quick turnaround.”
The employment numbers spurred yields on Treasuries to extend climbs for a second day. Traders will monitor this week’s $96 billion of Treasury note and bond auctions, which will be a test for the market, according to Daniel Mulholland, head of rates at Crews & Associates.
On the outlook for US stocks, Goldman Sachs Group Inc. strategists said the rally over the past month may be as good as it gets this year. The S&P 500 now accurately reflects signs of better-than-expected economic growth and a drop in bond yields, strategists led by David J. Kostin wrote in a note.
Elsewhere, oil advanced as traders took stock of the outlook for demand in China and the latest sanctions on Russian energy flows came into effect. Gold rose. The Swedish krona fell to its lowest level against the euro since 2009, as concerns abound over the state of the nation’s economy.
The Turkish lira was little changed against the dollar after Turkey and neighboring Syria were hit by a powerful earthquake before dawn on Monday, killing hundreds of people. The country’s benchmark stock index dropped as much as 4.6% and the Istanbul exchange suspended short selling as part of measures to limit wider market fallout.
Adani Group assets are facing continued volatility this week. Eight of the group’s 10 stocks declined in Mumbai trading on Monday, deepening their selloffs. Flagship Adani Enterprises Ltd. decided to shelve plans for its first-ever public sale of bonds, according to people familiar with the matter. The stock rout has roughly halved the market value of firms in the Indian group since Hindenburg Research’s claims for manipulation and accounting fraud.
“It’s clearly very important to the country because the operating businesses are so widespread,” Belita Ong, chairman of Dalton Investments, said on Bloomberg Television. “Our belief is that the government will take whatever steps are necessary to stabilize the situation, make sure the operating entities are working.”
Key events this week:
- Earnings this week are scheduled to include: AP Moller-Maersk, Apollo Global Management, AstraZeneca, BNP Paribas, BP, CME Group, Duke Energy, KKR, Nintendo, PepsiCo, Semiconductor Manufacturing International, Siemens, SoftBank Group, Toyota Motor, Uber Technologies, Unilever, Walt Disney
- Eurozone retail sales, Monday
- Australia rate decision, Tuesday
- US trade, Tuesday
- Fed Chair Jerome Powell at the Economic Club of Washington, Tuesday
- US President Joe Biden delivers the State of the Union address, Tuesday
- India rate decision, Wednesday
- US wholesale inventories, Wednesday
- New York Fed’s John Williams at event in New York
- Sweden rate decision, Thursday
- US initial jobless claims, Thursday
- ECB President Christine Lagarde participates in EU leaders summit, Thursday
- Bank of England Governor Andrew Bailey appears before Treasury Committee, Thursday
- China PPI, CPI, BoP, Friday
- US University of Michigan consumer sentiment, Friday
- Fed’s Christopher Waller and Patrick Harker speak, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.8% as of 9:13 a.m. London time
- S&P 500 futures fell 0.6%
- Nasdaq 100 futures fell 0.8%
- Futures on the Dow Jones Industrial Average fell 0.5%
- The MSCI Asia Pacific Index fell 1.5%
- The MSCI Emerging Markets Index fell 2.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.2% to $1.0778
- The Japanese yen fell 0.6% to 131.95 per dollar
- The offshore yuan rose 0.3% to 6.7834 per dollar
- The British pound was little changed at $1.2052
Cryptocurrencies
- Bitcoin fell 0.2% to $22,865.08
- Ether rose 0.6% to $1,632.46
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.58%
- Germany’s 10-year yield advanced seven basis points to 2.26%
- Britain’s 10-year yield advanced 11 basis points to 3.16%
Commodities
- Brent crude rose 0.4% to $80.26 a barrel
- Spot gold rose 0.5% to $1,874.03 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Michael G. Wilson and Tassia Sipahutar.
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