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Long-term Treasury yields hit their highest level since late 2023 on Monday, after last week’s strong U.S. jobs report led traders to lower expectations for Federal Reserve interest rate cuts. Big tech stocks fell.
The Nasdaq Composite Index, which is heavy on Wall Street’s tech stocks, closed 0.4% lower after a turbulent session that saw it drop as much as 1.7%. The broader S&P 500 index pared all its losses and rose 0.2%.
Many of the big tech groups that drove the market higher in 2024 have fallen. Chipmaker Nvidia fell 2%, while iPhone maker Apple and Facebook parent company Meta both fell more than 1%.
U.S. government debt has also come under new pressure, with the 10-year Treasury yield hitting 4.8%, its highest level since late 2023.
Julian Timmer, director of global macro at Fidelity Investments, said the last time the 10-year was close to 5% was at the end of 2023, and “we’ve had a 10% correction in the stock market.” did. And I wouldn’t be surprised at all if I saw it again. ”
The dollar index, which tracks the U.S. currency against a basket of countries, hit its highest level on Monday since November 2022. Recent developments have seen the euro briefly drop below $1.02, bringing the single currency closer to parity with the dollar for the first time this year. Over 2 years.
Friday’s U.S. jobs report showed payrolls rose by 256,000 in December, well above consensus expectations and “raises further doubt about the need for the Fed to continue lowering interest rates this year,” MUFG said. said Lee Hardman, senior currency strategist at
The swaps market now expects a decline of just one quarter point this year, with some analysts predicting the easing cycle is over.
“The United States is on a different tune than the rest of the world,” said Guy Miller, chief investment strategist at insurance group Zurich, highlighting the country’s strong economic growth.
Sterling hit a 14-month low, falling a further 0.5% to just under $1.21. It continues to be a painful period for trading in UK assets following last week’s fall in gold.
British government bonds fell slightly. The yield on the 10-year Treasury note rose 0.02 percentage point to 4.86%, moving towards a 16-year high reached last week. Gilts is struggling due to a combination of a global bond slide and concerns about the UK economy.
“A tangible turnaround would require seeing either a commitment to cut spending or a slowdown in services inflation on Wednesday,” said William Vaughan, fixed income portfolio manager at Brandywine Global.
The euro fell 0.3% against the dollar to $1.022.
Philip Lane, the European Central Bank’s chief economist, said in comments highlighting transatlantic disagreements on monetary policy that are increasing pressure on the single currency, if the eurozone does not continue to cut interest rates. It warned that inflation in the euro area could fall below its 2% target.
He argued that borrowing costs should not “remain high for too long” because growth is so weak that “inflation could fall well below target”.
In contrast to current expectations that the Fed will cut rates by just one quarter point this year, markets expect the ECB to do three or four similar actions over that period.
Additional reporting by Ray Douglas
