LONDON: Global stocks and Treasury prices tumbled on Friday after an unexpectedly strong US jobs report indicated the Federal Reserve may need to keep interest rates elevated to control inflation, according to Reuters.
This placed another roadblock in the way of a weeks-long markets rally that stumbled in US after hours trading on Thursday over disappointing earnings from Google, Apple, and Amazon.
S&P 500 futures slid 1.1 percent, contracts on the tech-heavy Nasdaq 100 dropped 1.8 percent.
The MSCI index of global shares fell 0.3 percent, having hit its highest level since August on Thursday in a rebound buoyed by optimism that central banks are close to the end of their aggressive rate hiking cycles.
The keenly-watched US nonfarm payrolls report showed US employers added 517,000 new workers in January, vastly overshooting expectations of economists polled by Reuters for a 185,000 gain.
Average hourly wages, which analysts and investors focus on for clues about whether a tight labour market may continue to fan the flames of inflation, rose 0.3%, matching economists' forecasts.
The yield on the 10-year Treasury, which underpins borrowing costs worldwide, added 11 basis points to 3.51 percent after the jobs data. The two-year Treasury yield, which follows traders' expectations of Fed fund rates, rose by 12 bps to 4.24 percent.
The Fed hiked its main interest rate by 25 bps to a range of 4.5 percent to 4.75 percent on Wednesday, taking benchmark borrowing costs to their highest since late 2007, and signalled more hikes to come. The European Central Bank and the Bank of England also raised rates on Thursday to contain inflation.
"In a year when the economic data is more important than the Fed, the January employment report clearly justified the Fed having tightened by 425 bps over the past 10 months," said Jack McIntyre, portfolio manager at Brandywine Global.
Ahead of the nonfarm payrolls data, markets had priced two US rate cuts by year-end on hopes the US economy was cooling enough to quell inflation but not on course for a downturn that could reduce companies’ earnings more than markets were already counting on.
US tech shares took a beating in after-hours trading on Thursday after Apple projected another revenue decline in the start of the year, Amazon warned that its operating profit could fall to zero in the current quarter, and Google parent Alphabet missed fourth-quarter profit and revenue expectations.
"We will see headwinds from further earnings downgrades, but we have incorporated quite a lot (of this) already so I think markets can hold here if we are indeed right on the Fed,” said Willem Sels, global chief investment officer at HSBC's private bank, who expects the US central bank to raise rates just one more time in 2023.
An index measuring the dollar against major currencies stood at 102.53, rising further from recent nine-month lows of 100.80.
In Europe, the Stoxx 600 share benchmark fell 0.4 percent. Germany's benchmark 10-year bond yield rose 13 bps to 2.14 percent, having on Thursday dropped by the most since 2011 as prices shot higher.
The euro traded at $1.0841, down 0.65 percent and pulling further away from Thursday's 10-month top of $1.1033.
