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(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.
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The Stoxx Europe 600 index retreated after closing Friday in a bull market, as investors showed their concern about a hawkish Fed. Contracts on the S&P 500 and the Nasdaq 100 both dropped by about 0.5%. An index of Asian equities also declined
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.
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.
“The episode should be a big surprise to investors given market’s previous expectation was that Sino-US relationship could improve after the now called-off Blinken visit,” said Willer Chen, senior research analyst at Forsyth Barr Asia.
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 jobs data 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.
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. Borsa Istanbul halted trading in eight companies until they make a statement on how their operations were affected by the quake.
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.
Adani Group assets are facing continued volatility this week. All of the group’s 10 stocks declined at the open in India, 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. While declines in shares were less savage on Friday than in previous days, 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 0.5% as of 8:20 a.m. London time
S&P 500 futures fell 0.5%
Nasdaq 100 futures fell 0.5%
Futures on the Dow Jones Industrial Average fell 0.4%
The MSCI Asia Pacific Index fell 1.5%
The MSCI Emerging Markets Index fell 2.2%
Currencies
The Bloomberg Dollar Spot Index rose 0.2%
The euro fell 0.1% to $1.0780
The Japanese yen fell 0.5% to 131.91 per dollar
The offshore yuan rose 0.2% to 6.7916 per dollar
The British pound was little changed at $1.2055
Cryptocurrencies
Bitcoin fell 0.1% to $22,877.25
Ether rose 0.7% to $1,633.03
Bonds
The yield on 10-year Treasuries advanced three basis points to 3.55%
Germany’s 10-year yield advanced five basis points to 2.24%
Britain’s 10-year yield advanced five basis points to 3.11%
Commodities
Brent crude rose 0.5% to $80.36 a barrel
Spot gold rose 0.8% to $1,880.09 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Charlotte Yang and Michael G. Wilson.
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