The global stock markets fall this Monday, while the dollar reaches its level highest in 26 months following a strong US jobs report, leading investors to wonder if interest rates will fall this year, just as corporate earnings season is about to begin.
A rise in energy prices also heightens concerns on constantly rising inflationas crude oil exceeded US$80 per barrel amid signs of a decline in Russian exports, while Washington reinforces sanctions against the country.
Natural gas prices in Europe climbed 4% in the last month alone, following a cold wave and Ukraine’s decision to stop the supply of Russian gas through pipelines. The data also showed a rebound in China’s export growth in December, along with a recovery in imports, as the world’s second-largest economy prepares for rising trade risks under the new US administration.
The compass of the bags
In Europe, stock markets fall for the second day in a row, leaving the STOXX 600 down 0.7% and Germany’s DAX down 0.6%. The UK’s FTSE 100 fell just 0.4%, supported by the weakness of the pound sterling, which was once again in the spotlight as borrowing costs continued to rise in the country.
Markets show that traders have lowered their expectations for Federal Reserve rate cuts to just 25 basis points for all of 2025, compared to the 45 points expected before Friday’s jobs report.
“Following a very strong jobs report, we believe the cut cycle is over,” said Aditya Bhave, deputy US economic director at BofA. “Inflation remains above the target, with risks to the upside.” “The conversation should focus on possible increases, which could be implemented if the year-over-year core PCE index exceeds 3% and inflation expectations are disanchored,” he added, referring to the Fed’s favorite indicator for measuring prices.
10-year Treasury yields hit a 14-month high of 4.79%. Wednesday’s consumer price index (CPI) report could prove even more decisive for the market as investors are close to ruling out any rate cuts this year. “As the weather softens a bit, whether the freeze in bond markets continues could depend on how the US CPI materializes after Friday’s jobs report,” said Deutsche Bank strategist Jim Reid.
Higher bond yields raise the discount cost to corporate earnings and make debt relatively more attractive compared to stocks, cash, property and commodities. However, financing costs for businesses and consumers also increase.
Part of the recent rise in yields is due to expectations that Donald Trump’s proposed tariffs will increase import prices. This could test optimism about corporate earnings as the season kicks off on Wednesday with major banks including Citigroup, Goldman Sachs and JPMorgan.
Wall Street anticipates a negative day
More losses ahead S&P 500 futures fell 0.6% and Nasdaq futures fell 0.95%, suggesting fresh losses on Wall Street after Friday’s decline. In Asia, a holiday in Japan limited trading on Monday. Major Chinese stocks fell 0.3% after data showed a surprising 10.7% rise in exports and a 1% rise in imports, fueling calls to impose tough tariffs on Chinese goods.
The 45 basis point rise in Treasury yields over the past two months pushed the dollar to its highest level since November 2022 against a basket of currencies. The pound has been particularly hard hit, falling 4.4% in that period.
On Monday, the pound fell 0.4% to $1.215, its lowest level since early November 2023. The global bond sell-off has hit the British gilt market, pushing long-term yields to their lowest. highest level since 1998, as concerns grow about the government needing more borrowing to meet its budget commitments.
Source: Ambito
I’m a recent graduate of the University of Missouri with a degree in journalism. I started working as a news reporter for 24 Hours World about two years ago, and I’ve been writing articles ever since. My main focus is automotive news, but I’ve also written about politics, lifestyle, and entertainment.
