By Amanda Cooper
LONDON (Reuters) – Global stocks fell on Monday, while the dollar hit a 26-month high following a bumper U.S. jobs report that prompted investors to question whether interest rates would fall this year, just as earnings season is about to begin.
The surge in energy prices has added to concerns about a steady rise in inflation, which has topped $80 a barrel on signs of falling Russian exports as Washington has stepped up sanctions against the country.
European prices rose 4% in the last month alone following a cold snap and after Ukraine’s decision to suspend pipeline deliveries of Russian gas.
The data also showed that China’s export growth accelerated in December, while imports recovered, as the world’s second-largest economy braces for growing trade risks under the new U.S. administration.
In Europe, stocks fell for a second day, leaving them down 0.7% and down 0.6%. The index fell just 0.4%, supported by weakness in the pound, which was again in focus as the UK’s borrowing costs continued to rise.
Markets show traders have already reduced their expectations for a Federal Reserve rate cut to just 25 basis points for all of 2025, down from more than 45 basis points ahead of Friday’s jobs data.
“After a very positive jobs report, we believe the cycle of budget cuts is over,” said Aditya Bhave, deputy chief U.S. economist at BofA. “Inflation is stuck above target, with upside risks.”
“The conversation should shift to hikes, which could be in play if one-year core PCE exceeds 3% and inflation expectations become unanchored,” he added, referring to the measure. prices of the Fed’s preferred personal consumption expenditures.
Yields on the 10-year Treasury note traded at 4.79%, their highest in 14 months.
Wednesday’s Consumer Price Index (CPI) report could prove even more market-moving than usual, as investors are set to rule out any rate cuts this year.
“As the weather warms up a bit, the continuation of the deep freeze in bond markets could be determined by how the U.S. CPI materializes on Wednesday after Friday’s blockbuster jobs report.” German Bank (ETR:) said strategist Jim Reid.
Higher bond yields raise the discount bar for corporate profits and make debt relatively more attractive compared to stocks, cash, real estate and commodities.
But they also increase borrowing costs for businesses and consumers. Part of the rise in yields in recent weeks has been driven by expectations that President-elect Donald Trump’s proposed tariffs will cause import prices to rise.
That could test optimism around corporate earnings as the season kicks off Wednesday with big banks including Citi Group (NYSE:), Goldman Sachs and JPMorgan.
MORE LOSSES TO COME
fell 0.6% and Nasdaq futures fell 0.95%, suggesting further losses on Wall Street on top of Friday’s decline.
In Asia, a public holiday in Japan led to weak trading on Monday. Chinese blue chip stocks fell 0.3%, as data showed exports rose a surprising 10.7% and imports rose 1%, adding ammunition to those calling for tough tariffs on Chinese products.
The 45 basis point rise in Treasury yields over the past two months has pushed the dollar to its highest level since November 2022 against a basket of currencies.
The pound sterling was particularly hard hit, falling 4.4% over this period. On Monday, the British pound was down 0.4% at $1.215, its weakest since early November 2023.
The global bond sell-off has hit the UK government bond market, sending long-term yields to their highest level since 1998, as concerns grow over the need for the government to borrow more to meet its budgetary commitments.
British Finance Minister Rachel Reeves said on Saturday she would act to ensure the government’s budget rules were respected.
The euro fell 0.3% to $1.0216, after hitting its lowest since November 2022 earlier today at $1.0207.
The dollar fell 0.1% against the yen to 157.535, but remains near a six-month high.
Oil prices rose another 2%, after a fall in Russian maritime exports to their lowest level since August 2023 fueled supply concerns, even before the latest round of US sanctions. Futures were up 2.3% at 81.56 a barrel.
