Global shares slide, as robust US jobs data pushes dollar near 20-year highs and investors brace for faster rate hikes
- Global shares slid for a third day on Monday, as investors grew increasingly twitchy about the outlook for the economy.
- Friday's US jobs data served to reinforce expectations for the Federal Reserve to rapidly raise rates.
Global shares slid for a third day on Monday, after strong US employment data on Friday suggested the Federal Reserve has even greater scope to raise interest rates aggressively to combat inflation.
Data on Friday showed the US economy added 428,000 jobs in April, in line with March's downwardly revised 428,000 gain and beating forecasts for a 391,000 increase. This was the 12th month in a row that nonfarm payrolls rose by over 400,000.
The futures market now indicates an almost-50% chance that US rates will reach 3.00% by the end of the year, from 1% right now. Just six weeks ago, the chances were closer to 14%. Since then, data releases have shown inflation has not abated, but economic growth has also been reasonably resilient, which could give the Fed room to raise rates faster without risking a slowdown.
"With inflation running hot, it's going to take a fairly sizable risk-off move to get the Fed to re-pivot dovish," Jefferies strategist David Zervos said.
"There is almost no downside for Fed in acting aggressively, and even if they expect inflation to head lower in coming quarters, why not go big on the accommodation-removal front and then take credit for the dis-inflationary successes?" he said.
US stock futures sagged, with those on the S&P 500, Dow Jones and Nasdaq 100 falling between 1.2% and 1.6%. The MSCI All-World index fell 0.6%, dropping for a third straight day.
With a set of rapid increases in US interest rates now on the cards, the dollar hit its highest level in almost 20 years against a basket of major currencies, luring in investors with the prospect of juicer returns on US assets than on those elsewhere.
The dollar index was up 0.4% at 104.35, its highest since late 2022, while the benchmark 10-year US Treasury yield rose 4 basis points on the day to 3.173%, its highest in well over three years.
Next up in key data is US consumer inflation on Wednesday. Economists expect to see the rate ease to 8.1% in April, from March's 8.5%.
"Lower gasoline and used car prices should knock headline and core CPI off its highs. Any larger-than-expected falls can perhaps suggest that the Fed need not be as aggressive in its hiking plans," ING strategists led by Chris Turner said in a note.
In addition to Russia's war in Ukraine, and the disruption to the flow of key commodities from crude oil to steel and sunflower oil, investors are having to grapple with the risks to the economy from the outbreak of COVID-19 in China that has forced lockdowns all over the country and dented growth.
Chinese trade data on Monday showed exports hit a two-year low in April.
"With China continuing to pursue its misguided zero-COVID policy, the restrictions in Shanghai are already having a chilling effect on economic output there, as well as port activity, or rather the lack of it, as container ships continue to sit off the Chinese coast waiting to be unloaded," CMC Markets strategist Michael Hewson said.
Elsewhere, the pan-European Stoxx 600 fell 1.4%, led by losses in basic resources and technology stocks, while in Asia, Shanghai's CSI 300 was 0.8% lower.
With concern over the economic outlook running high, oil futures eased. Saudi Aramco, the world's largest exporter, cut its official selling prices to Asia for June — a sign traders often take as an anticipation of lower demand. Brent crude was last down 0.8% at $111.50 a barrel, while WTI futures lost 1% at $108.67.
In cryptocurrencies, bitcoin fell below $34,000 for the first time since late January. It was last 3.3% lower on the day at $33,583, according to CoinMarketCap data. It's lost one-third of its value so far this year.