Global Stocks Tumble as Strong U.S. Jobs Data Dampens Rate Cut Hopes

LONDON, Jan 13 (Reuters) – Global stocks fell sharply on Monday, while the U.S. dollar surged to a two-year high, as investors reassessed the likelihood of further Federal Reserve interest rate cuts following a stronger-than-expected U.S. jobs report last week.

The December employment report, released Friday, showed 256,000 jobs added to nonfarm payrolls, far exceeding the forecast of 160,000 and marking the largest increase since March. The robust data, coupled with expectations of rising inflation under President-elect Donald Trump‘s policies, has led traders to question whether the Fed will continue cutting rates.

U.S. Treasury yields remained near recent highs, with the 10-year yield holding steady at 4.77%, its highest level in 14 months. The dollar index, which measures the greenback against a basket of major currencies, climbed to its strongest level since November 2022.

Wall Street followed European markets lower, with the S&P 500 dropping 0.9% and the Nasdaq Composite falling 1.3% in early trading. The STOXX 600 index in Europe declined nearly 1%, weighed down by rate-sensitive sectors like technology and financials.

“The market is still in pullback mode. Bears dialed up the pressure last week, especially after Friday’s strong jobs report fueled concerns the Fed isn’t going to cut interest rates any time soon,” said Chris Larkin, managing director of trading and investing at E*Trade, a Morgan Stanley unit.

Energy prices added to inflationary concerns, with crude futures rising above $80 a barrel for the first time since August. U.S. natural gas futures also hit a two-year high. The U.S. swaps market now prices in just 27 basis points of rate cuts by December, down from 43 basis points before the jobs report.

Investors are closely watching Wednesday’s U.S. consumer inflation data for December. Economists polled by Reuters expect an annual rise of 2.9%, up from November’s 2.7%, and a monthly increase of 0.3%. “Another hot print will likely only add fuel to the fire as to whether the Fed will need to re-engage with rate hikes later this year,” BNP Paribas economists noted.

The dollar’s rally continued, pushing the euro down 0.4% to $1.0207, near its weakest since late 2022, and sterling to $1.2139, its lowest since early November 2023. Gold prices fell 0.8% to $2,667 an ounce, as higher yields and a stronger dollar reduced its appeal.

Despite the recent pullback, gold hit a one-month peak last week, driven by uncertainty over Trump’s trade and economic policies and rising energy prices.