Key Points
- Global markets face losses driven by reduced Fed rate-cut expectations and surging oil prices.
- U.S. jobs data cut Fed rate-cut bets to under 30 basis points for 2025.
- UK assets suffered amid fiscal concerns, with the pound hitting a multi-month low.
- Chinese markets and the yuan faced pressures despite record export figures.
Global stock and bond markets faced significant losses as investor sentiment soured over diminishing expectations of Federal Reserve interest rate cuts this year and a fresh surge in oil prices that reignited inflation concerns. MSCI’s all-country equity index dropped to its lowest level since September, with European stocks falling 0.8%, led by declines in technology and industrial sectors. In the U.S., futures on the S&P 500 fell 0.8%, and Nasdaq 100 futures dropped 1.3%, with tech giants like Tesla, Palantir, and Nvidia facing steep premarket losses.
On Friday, a robust U.S. jobs report upended market assumptions, with traders slashing expectations for Fed rate cuts in 2025 to less than 30 basis points. Concurrently, rising inflation expectations sparked a selloff that erased the S&P 500’s year-to-date gains and drove the dollar to a two-year high. Treasury yields surged further, with 10-year yields hitting a 14-month peak and 30-year yields hovering near 5%, underscoring mounting borrowing costs worldwide.
Energy stocks were an outlier, gaining in Europe as Brent crude prices climbed above $81 per barrel following a new wave of U.S. sanctions on Russia. However, broader global markets remained under pressure. In the UK, 10-year gilt yields rose another five basis points, while the pound weakened to its lowest level since November 2023. Inflation data due on Wednesday could heavily influence UK markets, though analysts warn that even strong figures might fail to bolster the currency amid concerns about the country’s fiscal position.
The U.S. inflation report due Wednesday is also critical. Forecasts suggest a year-on-year rise to 2.9%. As major institutions like Bank of America and Goldman Sachs revise their outlooks, this could further dampen hopes for Fed rate cuts. Some now predict no cuts this year and a potential rate hike.
In Asia, Chinese markets struggled despite record export data for 2024. The offshore yuan neared a record low against the dollar, prompting government interventions to stabilize the currency and adjust capital controls.