By Naomi Rovnick and Koh Gui Qing
NEW YORK/LONDON (Reuters) – Global shares retreated from a record high on Friday after surprisingly strong monthly U.S. jobs data dashed hopes that the Federal Reserve would soon follow interest rate cuts in the euro zone and Canada, sending government bond yields higher would shoot.
The world’s largest economy added 272,000 jobs last month, surpassing the 185,000 jobs forecast by economists and derailing the consensus among investors that the labor market had eased just enough to lower consumer prices.
“This is a strong report and it suggests there are no signs of rifts in the labor market,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“It’s a plus for the economy and a plus for corporate profits, but it’s a negative in terms of the prospects for a rate cut, perhaps as early as September.”
Reduced hopes for near-term Fed action weighed on stocks, which closed lower after a choppy session. The MSCI world stock index fell 0.3% after reaching a record high of 797.48 points.
Wall Street ended in the red. They fell 0.1% after hitting a record high of 5,375.08 points. Shares fell 0.2% and also lost 0.2%.
The benchmark, a measure of global interest rates, rose more than 15 basis points to 4.4335% after the jobs report, the biggest one-day increase in about two months.
The two-year yield, which tracks interest rate expectations, rose nearly 17 basis points to 4.8868% after six consecutive days of declines through Thursday. Bond yields rise as prices fall.
Money market prices just after payrolls data implied traders saw the Fed only starting to cut rates from a 23-year high of 5.25-5.5% in November. U.S. interest rate futures also cut the odds of a Fed rate cut by 25 basis points in September to 56%, down from about 70% on Thursday, according to LSEG’s Fedwatch.
There were strong expectations earlier in the day that a September move would take place, especially after the European Central Bank made the widely expected decision on Thursday to cut deposit rates from a record 4% to 3.75%.
The Bank of Canada on Wednesday became the first Group of Seven country to cut its key policy rate, following cuts by Sweden’s Riksbank and the Swiss National Bank.
Following the jobs report, eurozone pricing also deteriorated, with traders now estimating a 55 basis point cut in the region this year, compared to 58 basis points before the data.
The European stock index, which is up almost 10% this year, lost 0.2%.
Eurozone bonds were also subdued on Friday, with the German 10-year Bund yield rising 8 basis points to 2.618%.
Elsewhere, the dollar rose 0.8% against a basket of currencies after forecasting a weekly loss ahead of the jobs data. The euro fell 0.8% to $1.0802 per day after rising slightly.
futures lost 0.6% to $79.36 a barrel. The stronger dollar continued to weigh, falling 3.6% to $2,290.59 an ounce.
