LONDON: Most Asian and European stock markets slumped on Monday on intensifying worries over the prospect of rising interest rates in the United States, dealers said.
Wall Street kicked off the global selloff on Friday as a bright non-farm payrolls report sent Treasury bond yields soaring on fears of a quicker-than-anticipated increase in borrowing costs.
New York’s Dow Jones Industrial Average plunged more than two percent after the release of a healthy January jobs report that showed the biggest increase in wages in nine years. That catapulted 10-year Treasury yields – a key global interest rates indicator – to fresh four-year highs.
The turmoil claimed fresh losses in Asia and Europe on Monday, with traders fretting that a resurgent US economy will lead to rapid interest rate rises by the Federal Reserve. The selling was fuelled also by profit-taking after a blistering January that saw several indexes strike record or multi-year highs, while energy firms were hit by a drop in oil prices.
“Stocks look like they are set for a correction of some sorts after huge losses over the last few sessions that has left many bulls worried that the bull run may have come to an end,” said AxiTrader analyst James Hughes.
On Friday, New York’s Dow closed down 666 points, with the S&P and Nasdaq also down sharply. Futures markets priced in the risk of three, or even more, rate rises by the Federal Reserve this year after Friday’s data release.
“This morning Europe is catching the virus and is aggressively lower,” said Hughes. “The issue with this kind of fall is that it becomes a snowball effect, and after such astronomical gains since election day 2016 the falls can be equally as aggressive, but nobody could say that a correction has not been due.”
A market correction is drop of more than 10 percent from recent highs. The Dow is now down 4.1 percent from a record high struck on January 26. There was fresh turmoil in Washington on Friday after Donald Trump approved the declassification of a controversial memo linked to the FBI’s Russia probe.
Wall Street has enjoyed a record-breaking run ever since Trump’s 2016 election on hopes of a beneficial impact from the US president’s pro-business tax-cutting policies. Many equity markets were already in negative territory last week owing to rising bond yields and profit-taking.
In Asia on Monday, Tokyo dived 2.6 percent, while Hong Kong sank more than one percent and Sydney closed down 1.6 percent. However, Shanghai recovered to end 0.7 percent higher.
The rise in bond yields, fuelled by a surging US economy and corporate earnings, has spooked traders worried that the Fed will raise borrowing costs more than the three times initially expected this year.
“It’s an equity storm, created by the pressure from bonds,” noted ETX Capital analyst Neil Wilson. “Equity nervousness seems to be about repricing for higher yields and tighter Fed policy.” The dollar was meanwhile under pressure, sliding against major rival currencies.
Europe’s benchmark Stoxx 600 fell 1.5 percent, its sixth consecutive day of losses totalling 4.6 percent – 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 1.4 percent, France’s CAC 40 1.4 percent and Germany’s DAX 1 percent.
