Global Markets Tumble as Dollar Soars
Strong Jobs Report Sparks Rate Hike Fears
Global stocks plummeted on Monday, while the dollar surged to 26-month highs, as investors digested a robust U.S. jobs report that has raised doubts about interest rate cuts this year. The report has sparked concerns about steadily rising inflation, with crude oil prices topping $80 a barrel due to signs of falling Russian exports.
Energy Prices Fuel Inflation Worries
A cold snap in Europe has led to a 4% increase in natural gas prices over the past month, while Ukraine’s decision to halt Russian gas deliveries via pipeline has added to the pressure. Meanwhile, China’s export growth has picked up steam, and imports have recovered, as the world’s second-largest economy prepares for mounting trade risks with the incoming U.S. administration.
European Equities Take a Hit
European stocks fell for the second consecutive day, with the STOXX 600 down 0.7% and Germany’s DAX down 0.6%. The FTSE 100 was relatively resilient, down only 0.4%, thanks to a weak pound. UK borrowing costs have continued to rise, putting pressure on the pound.
Fed Rate Cuts in Doubt
Markets have already scaled back expectations for Federal Reserve rate cuts to just 25 basis points for all of 2025, down from 45 basis points before Friday’s jobs data. According to Aditya Bhave, deputy chief U.S. economist at BofA, “After a very strong jobs report, we think the cutting cycle is over. Inflation is stuck above target, with upside risks.”
Bond Yields Soar
Yields on 10-year Treasuries have traded at 14-month peaks of 4.79%, making debt relatively more attractive compared to equities, cash, property, and commodities. However, higher bond yields also raise borrowing costs for businesses and consumers.
Corporate Earnings Season Kicks Off
Wednesday’s consumer price index (CPI) report could be a major market-mover, given the current uncertainty around interest rates. The report will be closely watched, especially as corporate earnings season kicks off with major banks including Citigroup, Goldman Sachs, and JPMorgan.
More Losses Ahead?
S&P 500 futures fell 0.6%, and Nasdaq futures dropped 0.95%, suggesting more losses ahead on Wall Street. In Asia, Chinese blue chips fell 0.3%, as data showed exports rose a surprisingly steep 10.7% and imports added 1%.
Dollar Strengthens
The dollar has surged to its highest since November 2022 against a basket of currencies, with sterling particularly hard hit, down 4.4% in the last two months. The euro was down 0.3% at $1.0216, having touched its lowest since November 2022 earlier in the day.
Leave a Reply