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Big technology stocks slipped on Monday as long-term Treasury yields hit the highest level since late 2023 after last week’s strong US jobs data led traders to slash expectations for interest rate cuts by the Federal Reserve.
Wall Street’s tech-heavy Nasdaq Composite index closed 0.4 per cent lower at the end of a turbulent session that saw it drop as much as 1.7 per cent. The broader S&P 500 shed all of its losses to rise 0.2 per cent.
Many of the big tech groups that drove markets higher in 2024 fell. Chipmaker Nvidia dropped 2 per cent while iPhone maker Apple and Facebook parent Meta both slid more than 1 per cent.
US government debt also came under renewed pressure, with the 10-year Treasury yield reaching 4.8 per cent — its highest level since late 2023.
Jurrien Timmer, Fidelity Investments’ director of global macro, noted that the last time the 10-year neared 5 per cent in late 2023, “the stock market had a 10 per cent correction. And it would not surprise me at all to see that again.”
The dollar index, which tracks the US currency against a basket of its peers, on Monday reached its highest level since November 2022. The latest moves pushed the euro briefly under $1.02, with the single currency approaching parity with the dollar for the first time in more than two years.
The US payrolls report on Friday showed 256,000 jobs were added in December, blowing past consensus estimates and casting “further doubts on the need for the Fed to keep lowering rates this year”, said MUFG senior currency strategist Lee Hardman.
Swaps markets now expect just one quarter-point cut this year, with some analysts predicting the easing cycle has finished.
“The US is dancing a different tune to most of the rest of the world,” said Guy Miller, chief investment strategist at insurance group Zurich, highlighting strong US economic growth.
The pound hit a 14-month low, falling a further 0.5 per cent to just below $1.21. The drop continues a bruising period of trading for UK assets after last week’s gilt sell-off.
UK government bonds were slightly weaker. The 10-year yield was up 0.02 percentage points at 4.86 per cent, moving back towards last week’s 16-year high. Gilts have suffered as a global bond sell-off mixes with concerns about the UK’s economy.
“For a concrete turnaround, we will need to see either a commitment to reduce spending or a softening in services inflation on Wednesday,” said William Vaughan, a bond portfolio manager at Brandywine Global.
The euro was down 0.3 per cent against the dollar at $1.022.
In comments highlighting the transatlantic divergence on monetary policy that has increased pressure on the single currency, Philip Lane, the European Central Bank’s chief economist, warned that Eurozone inflation could undershoot its 2 per cent target if the region did not keep cutting interest rates.
He argued that borrowing costs should not “remain too high for too long” since growth could be so weak that “inflation could materially fall below target”.
By contrast with the current expectations of only one Fed quarter-point rate cut this year, markets anticipate three or four such moves by the ECB in that time.
Additional reporting by Ray Douglas
