Global Markets-Stocks set to snap 9-week winning streak on interest rate rethink

Global equities were on course to snap a nine-week winning streak, the dollar surged and government bonds sold off as traders rolled back expectations of central bank rate cuts. Data on Friday showed the U.S. jobs market was surprisingly robust in December and that euro zone inflation climbed, sending MSCI’s broadest index of world stocks 0.3% lower and heading for a 2.1% decline this week.

The U.S. dollar index, which measures the currency against a basket of six major peers, added 0.7% to 102.72. Futures trading also tipped the U.S. S&P 500 share index and the tech-focused Nasdaq 100 to drop around 0.5% in early New York dealings. Europe's Stoxx 600 index fell 1.1%.

Though wobbly, the stock market giants maintain great momentum at the end of 2023. U.S. stocks Big-tech NASDAQ 100 showed a slight but incredible rise compared to 2020. Nasdaq Composite edged down 0.56% to 15,011.36 but presented a remarkable rise of 43.4% in 2023. This is a great start for the New Year 2024 as NASDAQ is only 6.5% below their previous records set in November 2021, which they aim to surpass.

The New Year’s hangover for equity markets came after a blistering rally at the end of 2023 based on expectations that the U.S. Federal Reserve would cut interest rates six times this year, alongside significant easing by the European Central Bank. “The data right now is not suggesting rate cuts are imminent,” said Jason Da Silva, global investment strategy director at Arbuthnot Latham.

The U.S. monthly non-farm payrolls report on Friday showed the world’s largest economy added 216,000 new jobs in December, compared to expectations of 170,000 new hires from economists polled by Reuters. The jobless rate held steady at 3.7%, with most forecasters having expected it would rise, creating new concerns for investors that the Fed's long battle against inflation may have further to run.

Euro zone inflation data on Friday showed prices in the currency bloc rose 2.9% year-on-year in December, up from 2.4% in November and potentially creating less urgency for the European Central Bank to start cutting borrowing costs from record highs. Traders on Friday saw a 60% chance of the Fed starting to lower its funds rate from a 22 year high of 5.25% to 5.5% in March, according to the CME Group’s Fedwatch tool, down from a 71% probability a week ago.

The 10-year Treasury yield, which tracks expectations of long-term borrowing costs and rises as the price of the debt security falls, was 9 basis points (bps) higher on the day at 4.076% just after the jobs data. This key debt yield has risen by almost 20 bps this week. Germany's 10-year bund yield rose 9 bps to 2.19% on Friday, on track to end the week 16 bps higher.

Elswhere in markets, Japan's Nikkei added 0.3% as exporters got a boost from a weaker yen. A deadly New Year's Day earthquake on Japan's sea coast has also forced wagers for the ultra-dovish Bank of Japan to tighten monetary policy this month off the table.

Gold slipped 0.2% to $2,039 per ounce, on track for a 1.1% weekly slide. Oil markets remained volatile on Friday as expectations of weak demand from China clashed with concerns about Red Sea supply disruptions following attacks on ships by Yemen's Iran-backed Houthis. Brent crude futures were most recently up 1.3% at $78.18 per barrel, after settling down 0.8% overnight.

For the week, the global oil benchmark is up 1.5%.