Global shares slide as interest-rate risk rises and geopolitics heat up
US stock futures slip, European shares fall
Yen skids as market eyes possible BOJ governor
Investors will weigh US rates with a number of Fed speakers due
LONDON, Feb 6 (Reuters) – Global shares fell on Monday, after a series of positive economic data suggested that interest rates will have to rise further and stay higher for longer, while a dollar more strong and political turmoil hit risk assets.
Last week’s blockbuster US jobs report sent investors weighing on the dollar at the expense of emerging market assets and lower-yielding currencies such as the yen.
Government bonds, which usually perform well when there is a dash for safe havens, came under intense pressure, sending 10-year Treasury yields to one-month highs above 3.603%.
The US military said on Sunday it was searching for debris from a suspected Chinese surveillance balloon it shot down a day earlier, while Beijing on Monday urged Washington not to escalate matters.
Turkey’s pressured lira hit a record low after a powerful earthquake hit Turkey and Syria on Monday, killing more than 1,400 people. The currency sank after data last week showed a worrying monthly rise in consumer inflation.
Friday’s US data showed 517,000 jobs were created in January, well above expectations for 185,000, while revisions to the 2022 figures led to non-farm payrolls rising by 586,000 to the year. Deutsche Bank strategist Jim Reid called the report “amazing”.
By Monday, the dollar had touched a three-week high of 132.60 against the weaker yen following reports that the Japanese government had offered the job of central bank governor to the deputy current Masayoshi Amamiya, considered to be less of a monetary policy hawk than his predecessor.
The dollar was last up 0.7% on the day at 132.08 yen, boosting its index 0.13% to 103.26, up 1.2% on Friday. The euro fell 0.2% to $1.077, while sterling was flat against the dollar at $1.205 and rose 0.2% against the euro to 89.40 pence.
The MSCI All-World share index fell 0.6% on the day, led in part by a 0.9% drop in European blue-chips as the STOXX 600 came under pressure.
The drama over the balloon, which Beijing reiterated was a civilian airship that accidentally drifted into US airspace, further strained already tense relations and prompted Washington to cancel a planned visit to Beijing by Secretary of State Antony Blinken.
Chinese shares fell on Monday, while the offshore yuan hit a one-month low against the dollar. It has fallen by almost 2% in the space of three days.
“Without a doubt, the incident is a negative headline for the market,” said Yuan Yuwei, hedge fund manager at Water Wisdom Asset Management. “The strong US jobs report also cooled the fever of “rate pivot” perceptions, leading to a rising dollar and a weakening yuan.”
Deutsche Bank’s Reid said that diplomatic tensions between the two countries will be worth watching this week. “We will see if there is any retaliation and/or how strong the rhetoric is.”
S&P 500 futures and Nasdaq futures fell between 0.7-0.9% after the January payrolls report saw investors price in the risk of further hikes from the Federal Reserve, and less chance of cuts later in the year.
The dollar’s strength also washed through emerging markets.
The pound bore much of the brunt of the risk-off mood, falling to a record low of 18.85 to the dollar, while the Thai baht posted its biggest one-day decline against the US currency in ‘more than 20 years.
“The tragic events with the southern part of Turkey hit by a strong earthquake are a source of additional uncertainty ahead of crucial elections likely to be held in May,” said Piotr Matys, senior FX analyst at In Touch Capital Markets.
“More importantly, the US payrolls published last Friday indicated that the Fed is likely to remain in tightening mode for longer than what markets currently anticipate in when President Erdogan strongly indicated that he expects the Turkish central bank to cut interest rates,” he said.
CENTRAL BANKER DELUGE
A number of Fed officials should speak this week, led by Chair Jerome Powell on Tuesday, and the tone may be hawkish. The policy makers of the European Central Bank and the Bank of England will also be making appearances.
Futures are almost fully priced in for a quarter point U.S. rate hike in March, and likely another in May, leaving the peak at 5.0% from 4.9% before the data of jobs.
Oil futures rose on Monday, after losing 3% after wages. Brent rose 0.4% to $80.30 a barrel, while US crude gained 0.3% to trade at $73.60 a barrel.
An energy official told Reuters on Monday that there was no damage to two of Turkey’s main oil pipelines and flows were continuing after the quake.
(Additional reporting by Bansari Mayur in Bangalore, Karin Stohecker in London and Wayne Cole in Sydney; Editing by Shri Navaratnam, John Stonestreet and Chizu Nomiyama)