Stock markets drop as early US rate cut chances recede

Stock markets retreated Monday, extending a weak start to the year, after a forecast-busting US jobs report further dampened hopes of an early cut to interest rates in the world's biggest economy.

US and European oil futures slid nearly three percent after top producer Saudi Arabia cut the price of its crude, analysts said, weighing also on shares of energy majors.

The keenly awaited non-farm payrolls data Friday showed the US economy remained resilient despite interest rates sitting at a two-decade high and inflation still well above the Federal Reserve's target.

However, the figures dealt another blow to expectations the central bank would start to cut borrowing costs in the next few months.

"Friday's US jobs report brought fresh concerns over the likeliness of the Fed to cut rates in March as markets have been widely anticipating, with a hot payrolls figure coming alongside a higher wage growth reading," noted Joshua Mahony, chief market analyst at Scope Markets.

Attention now turns to the release this week of US consumer price figures.

Equities ended 2023 with a surge as traders bet on a string of rate reductions this year thanks to falling inflation and a softening of the labour market.

But the release of minutes last week from the Fed's December meeting showed decision-makers were happy to keep rates elevated for some time to make sure they have prices under control.

Policymakers have signalled 75 basis points of cuts this year, but markets have priced in as much as 150 points, leaving investors open to disappointment.

"The first week of 2024 brought contradictory data signals," Barclays economists wrote in a client note.

"Solid US jobs growth, cautious Fed minutes and a still robust US economy raise doubts about markets' aggressive Fed rate-cut expectations," it added.

A sharp slowdown in the US services sector provided some solace for investors, as it suggested the economy was slowing, giving the Fed wiggle room.

Wall Street ended slightly higher Friday but the positive finish failed to cross over into Monday's trading.

A sell-off in tech giants hammered Hong Kong, while Shanghai was also deep in retreat. Tokyo was closed for a holiday.

London and Paris fell, while Frankfurt edged higher, nearing the half-way stage in European deals.

In US pre-market trading, shares in Boeing slumped more than eight percent after a mid-air emergency Friday in which a piece of fuselage came off a 737 MAX 9 jetliner as it flew over the US west coast.

Shell lost two percent in London, hit also by a mixed trading update ahead of the British energy group's annual earnings due next month.

- Key figures around 1100 GMT -

London - FTSE 100: DOWN 0.4 percent at 7,661.55 points

Paris - CAC 40: DOWN 0.2 percent at 7,404.39

Frankfurt - DAX: DOWN 0.1 percent at 16,585.94

EURO STOXX 50: DOWN 0.2 percent at 4,456.89

Hong Kong - Hang Seng Index: DOWN 1.9 percent at 16,224.45 (close)

Shanghai - Composite: DOWN 1.4 percent at 2,887.54 (close)

Tokyo - Nikkei 225: Closed for a holiday

New York - Dow: UP 0.1 percent at 37,466.11 (close)

Euro/dollar: UP at $1.0943 from $1.0942 on Friday

Dollar/yen: DOWN at 144.40 yen from 144.69 yen

Pound/dollar: DOWN at $1.2708 from $1.2718

Euro/pound: UP at 86.12 pence from 86.01 pence

West Texas Intermediate: DOWN 2.9 percent at $71.70 per barrel

Brent North Sea Crude: DOWN 2.8 percent at $76.55 per barrel