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Stock markets were routed around the globe on Monday, with European indexes opening lower and bond yields rising as resurgent US inflation raised the possibility central banks would tighten policy more aggressively than had been expected.
Europe’s benchmark Stoxx 600 fell 1 per cent, its sixth consecutive day of losses totalling 4.1 per cent - the biggest decline since the United Kingdom voted in June 2016 to leave the European Union.
All major indexes in Europe fell: the UK’s FTSE 100 dropped 1 per cent, France’s CAC 40 0.8 per cent and Germany’s DAX 0.6 per cent. Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan shed as much as 2 per cent, its largest daily drop since late 2016. It was last down 1.5 per cent.
US payrolls data
Friday’s US payrolls report showed wages growing at their fastest pace in more than eight years, fuelling expectations for both inflation and interest rates would rise more than previously forecast. That sparked a global sell-off that continued on Monday. Futures markets priced in the risk of three, or even more, rate rises by the Federal Reserve this year.
“This added fuel to a bond market sell-off, pushing US 10 year Treasury bond yields closer to the magic 3 per cent level, which will only increase the borrowing costs for corporates following years of cheap financing, thus ushering equities further from recent highs,” said Mike van Dulken, head of research at Accendo Markets
Bond yields, which move inversely to bond prices, rose to multi-year highs across the globe. Yields on 10-year US Treasury debt hit a four-year high of 2.885 per cent, having jumped almost 7 basis points on Friday. They were last trading at 2.849 per cent.
German 10-year yields, the benchmark in Europe, rose to 0.774 per cent, their highest since September 2015. German 30-year yields rose to two-year highs at 1.429 per cent.
FX fallout
Faster rate rises by the Fed would hurt emerging markets and commodity currencies, said Deutsche Bank macro strategist Alan Ruskin.
The Norwegian crown, a key commodity currency, was one of the biggest losers in Europe on Monday, down 0.3 per cent against the U.S. dollar. In emerging markets, the South African rand fell 0.7 per cent and the Chinese yuan and Polish zloty 0.2 per cent.
Rising US yields gave the dollar some support in early Asian trade, but it lost ground later in the session. Against a basket of currencies, the dollar was down at 89.111, after climbing 0.6 per cent on Friday for its biggest single-day gain in three months.
Any rally by the dollar weakens commodities priced in the currency, with the Thomson Reuters CRB index down 0.5 per cent. Gold was off at $1,334.92 an ounce after losing 1 per cent on Friday.
In oil markets, Brent fell 0.86 per cent to $68.09 a barrel and US crude dropped 0.76 per cent to $65.07.
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