LONDON: Data showing strong job creation and wage gains in the United States fed expectations of interest rate hikes, sending the dollar and US bond yields higher on Friday, while stocks slumped.
With 200,000 jobs added to the US economy last month, more than analysts had forecast, expectations are mounting that the Federal Reserve will push forward with more intest rate hikes.
The Fed’s concerns about tepid inflation will likely be salved by data showing wage growth of 2.9 percent, the largest 12-month increase in more than nine years.
The greenback snapped higher after the announcement, as did the yield on US government bonds. Bloomberg reported the rate of return on 10-year US Treasury hit a four-year high of 2.84 percent.
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“Rising wages are a good thing for the economy, but what is good for the economy isn’t always good for the stock market if it drives up rate-hike expectations,” said Briefing.com analyst Patrick O’Hare.
– Jobs crutch for dollar –
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“The dollar clearly needed support this week, and January’s impressive US jobs data has come to the rescue,” said research analyst Lukman Otunuga at FXTM online currency brokerage.
But analyst Craig Erlam downplayed the size of the gains by the dollar gains.
“Not an overly large move in USD when you consider size of beat on earnings and a small beat on NFP. Sign of USD unpopularity right now?” he tweeted.
The dollar has been struggling against its major peers recently.
With dealers betting on tighter monetary policy at the European Central Bank and preferable terms for Britain when it leaves the European Union, the euro and pound have been making gains against the dollar the past couple of weeks.
The dollar has also been weighed down by political worries, including over a US government shutdown and earlier today by reports that the new head of the FBI could resign if Trump approves the release of an explosive secret memo at the centre of a political firestorm in Washington.
– Goodbye Goldilocks? –
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Meanwhile, stocks fell, as higher interest rates are not usually good for consumers and companies.
The Dow was down 1.3 percent in late morning trading.
London Capital Group’s Jasper Lawler said rising bond yields had put stock markets on high alert.
“A three percent 10-year treasury yield is the big kahuna for a larger stock market correction,” he wrote in a client note.
“Rising interest rates mean the ‘Goldilocks’ scenario for markets is warming up to ‘daddy bear’,” he added.
With the Federal Reserve already in the midst of a rate-raising cycle — it is now tipped to hike at least three times this year — there is increasing concern about the impact on growth and world markets.
Eurozone stock markets also slumped on Friday, with the Frankfurt and Paris stock markets down over 1.5 percent.
Outside the eurozone, London’s losses were less acute at 0.6 percent.
“The global equity selloff has gathered pace, with European markets taking the brunt of the selling,” said Chris Beauchamp, chief market analyst at IG trading group.
– Bitcoin heads down –
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Asian markets swung Friday with some recovering from early losses but traders remain on edge as over the rise in US Treasury yields.
Bitcoin fell below $8,000 for the first time since November after India said it did not consider cryptocurrencies legal tender and will look to eliminate their use as payment systems.
The remarks come after regulators in South Korea, China and Russia recently said they would clamp down on virtual currencies.
Bitcoin’s level compares with its record high around $19,500 seen in mid-December at the height of a crypto-boom. Some analysts warn it could fall to $6,000.
– Key figures around 1630 GMT –
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London – FTSE 100: DOWN 0.6 percent at 7,443.43 points (close)
Frankfurt – DAX 30: DOWN 1.7 percent at 12,785.16 (close)
Paris – CAC 40: DOWN 1.6 percent at 5,364.98 (close)
EURO STOXX 50: DOWN 1.5 percent at 3,524.97
New York – DOW: DOWN 1.3 percent at 25,862.19
Tokyo – Nikkei 225: DOWN 0.9 percent at 23,274.53 (close)
Hong Kong – Hang Seng: DOWN 0.1 percent at 32,601.78 (close)
Shanghai – Composite: UP 0.4 percent at 3,462.08 (close)
Euro/dollar: DOWN at $1.2438 from $1.2507 at 2200 GMT
Pound/dollar: DOWN at $1.4118 from $1.4263
Dollar/yen: UP at 110.36 yen from 109.39 yen
Oil – Brent North Sea: DOWN $1.59 at $68.06 per barrel
Oil – West Texas Intermediate: DOWN $1.08 at $64.72
Source: Brecorder.com
