US stocks and government bonds fell and the dollar strengthened on Monday after last week’s blockbuster jobs report raised the possibility of further interest rate hikes.
Blue-chip Wall Street’s S&P 500 fell 0.6 percent in afternoon trade and the tech-heavy Nasdaq Composite lost 0.9 percent as the latest nonfarm payrolls report continued to be dismal.
US equities fell on Friday after the jobs report, but gained this week as the Federal Reserve raised its key policy rate by just a quarter of a percentage point, the smallest amount since March.
Data released on Friday showed that the US added 517,000 jobs in January, higher than the 185,000 anticipated by Wall Street economists. The unemployment rate fell to a 50-year low of 3.4 percent and average incomes increased.
“US employment data surprised” and the number of jobs created “makes it more likely that the Fed will continue to hike”, said Steve Englander, strategist at Standard Chartered.
A measure of the dollar’s strength against a basket of six other currencies added 0.6 percent on Monday, but Refinitiv data showed the currency has fallen about 6 percent over the past three months as U.S. rate hikes have slowed.
Englander said the job report in itself is not likely to unwind the negative view of the dollar, but that “signal inflation is alarming” when the January numbers released later this month can do the trick. Inflation declined for the sixth month in a row in December, coming in at an annual rate of 6.5 percent.
Government bonds in the US and Europe are on sale. The yield on the benchmark 10-year Treasury rose 0.1 percentage point to 3.63 percent. It followed a 0.13 percent gain on Friday. The rate-sensitive two-year Treasury yield increased 0.15 percentage points to 4.45 percent.
The yield on the 10-year German Bund added 0.1 percentage point to 2.29 percent, reversing last week’s decline.
Traders initially rushed into government bonds on hopes that the current cycle of rate hikes is coming to an end, even though the European Central Bank and the Bank of England last week raised rates by half a percent.
Europe’s Stoxx 600 fell 0.8 percent, as did Germany’s Dax, with sentiment also dented by euro zone retail sales figures for December. London’s FTSE 100, which last week hit a record high, fell 0.8 percent.
Most Asian equities declined on Monday as a rally in January came as Chinese equities faltered and US-China tensions boosted sentiment. Hong Kong’s Hang Seng index fell 2 percent, while China’s CSI 300 fell 1.3 percent.
Prices for international oil benchmark Brent crude added 1.4 percent to $81.10 a barrel after losing 7.8 percent last week. U.S. benchmark West Texas Intermediate rebounded 1.1 percent to $74.16 a barrel after falling 7.9 percent in the previous week.