Global stocks recover after US jobs report sell-off

LONDON (Reuters) – Global stock markets gained on Monday, recovering from losses triggered by last week’s strong US jobs report that fueled sharp interest rate hikes, while the dollar weakened and government bond yields tumbled.

Markets quickly moved on Friday pricing in a 70% probability that the US Federal Reserve will raise interest rates by 75 basis points in September, pushing up two-year yields by 20 basis points and increasing the curve inversion. Read more

However, the Euro Stoxx 600 is broad (.stoxx) It rose 0.8% in early trading on Monday, led by cyclical and advanced stocks, helping to recover losses from Friday led by the US jobs report. Miners (.SXPP) technology stock (.SX8P)which hit hard the previous week, led the gains.

MSCI World Stock Index (.MIWD00000PUS)which measures stocks in 47 countries, added 0.2%, offsetting losses by the same amount seen on Friday.

S&P 500 and Nasdaq futures rose 0.5% and 0.6%, respectively. The S&P 500 finished lower on Friday, dragged down by technology stocks.

However, higher rates remained in the focus of investors’ attention.

“Sectors like top-rated tech stocks have been under pressure for a while so we can see the fed funds rate come down,” said Robert Alster, chief investment officer at Close Brothers Asset Management.

The jobs data raised the risks for the US consumer price report for July due on Wednesday, which could see a slight dip in core growth, but an additional acceleration in core inflation is likely.

Deutsche Bank analysts wrote: “Our economists expect the headline (annual) rate to finally fall after the recent drop in energy prices.”

The threat of a recession was haunting stock markets earlier, with the broadest MSCI Asia Pacific Index outside of Japan (MIAPJ0000PUS.) 0.5% dipping.

After rallying on Friday after strong US non-farm payrolls data, most Eurozone bond yields were lower. The German 10-year bond yield fell slightly to 0.89%.

Italian bonds underperformed, with 10-year yields up nearly 2 basis points per day at 3.04%. The closely watched Italian bond yield gap compared to Germany’s was around 213 basis points, versus 205 basis points late Friday.

Rating agency Moody’s cut Italy’s outlook to “negative” from “stable” on Friday, weeks after the resignation of Prime Minister Mario Draghi sparked fresh political uncertainty. Read more

Two-year Treasury yields rose 3.19%, 40 basis points higher than 10-year Treasury yields.

The bonds also received a safe haven offer due to concern over Beijing’s military conflict against Taiwan as China conducts four days of military exercises across the island. Read more

Dollar forecast?

The US dollar fell 0.3% against a basket of currencies to 106.34, giving up some gains after consolidating on the back of booming jobs and a jump in yields.

However, it rose 0.2% against the Japanese yen to 134.75 yen, after jumping 1.6% on Friday.

Currency market analysts were optimistic about the dollar’s outlook.

“Data like this will add to any thoughts of ‘US exceptionalism’ and it is very positive for the US dollar against all currencies,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank, referring to US jobs statistics.

The euro trimmed its meager gains to reach $1.021.

Bitcoin and other cryptocurrencies have gained, which tends to act as a measure of risk appetite. Bitcoin’s latest rise was 3.9%.

Gold managed to rebound from Friday’s lows, rising 0.5% to $1,782.

After earlier gains, Brent crude futures fell 1.8% to $93.26 a barrel. US West Texas Intermediate CLc1 crude was at $87.54 a barrel, down 1.7%.

Additional reporting by Tom Wilson in London. Additional reporting by Wayne Cole in Sydney; Editing by Jacqueline Wong, Bradley Perrett and Jean Harvey

Our criteria: Thomson Reuters Trust Principles.