Global stock markets fall, US yields rise after strong employment data

NEW YORK, June 3 (Reuters) – Global equity markets fell as US Treasury yields reached two-week highs on Friday after data showed the American economy generated a greater-than-expected number of jobs in May, signaling the Federal Reserve will likely continue raising interest rates in its effort to curb inflation.

The Labor Department’s closely watched employment report showed the US economy added 390,000 jobs in May, with the unemployment rate holding steady at 3.6% for a third straight month, beating most analyst estimates.

Traders were hoping the jobs report would reveal stronger signs of weakness in the US economy that would help persuade the Fed to soften its stance on inflation and interest rates to avoid triggering a recession.

“It was strength across the board with the exception of retail trade, and the economy on the jobs front continues to power forward,” said Josh Wein, portfolio manager at Hennessy Funds in Chapel Hill, North Carolina.

“The Fed still needs to unfortunately destroy a little bit of demand and they are going to continue to do that for at least the next few meetings with 50-point rate hikes.”

The MSCI world equity index, which tracks shares in 50 countries, was down 1.19%. The pan-European 600 index was also down 0.30%.

US Treasury yields advanced to two-week highs after the strong jobs data. Benchmark 10-year notes were up at 2.9534%, while the rate-sensitive two-year year note gained and was up at 2.6647%.

On Wall Street, all three major indexes were led lower by sell-offs in the technology, consumer discretionary, communication services, financials, and industrials sectors.

The Dow Jones Industrial Average fell 1.08% to 32,889.34, the S&P 500 lost 1.76% to 4,103.47 and the Nasdaq Composite dropped 2.72% to 11,981.98.

“Some of the rally (in equities) of late was due to the Fed acknowledging that in the fall they could reassess and take a pause perhaps. But the market is retracing some of their earlier losses and saying basically that’s all off the table,” Wein said.

The US dollar edged higher against a basket of currencies after the employment report. The dollar index rose 0.373%, with the euro EUR= down 0.27% to USD 1.0716.

Oil prices rose, buoyed by expectations that OPEC’s decision to increase production targets by slightly more than planned won’t affect tight global supply much and by rising demand as China eases COVID-19 restrictions.

Brent crude LCOc1 rose 1.95% to USD 119.90 a barrel while US West Texas Intermediate crude CLc1 advanced 2.02% to USD 119.23.

Gold prices fell after bullion’s appeal was dented by the rise in the US dollar and Treasury yields following the strong jobs data.

Spot gold dropped 0.8% to USD 1,853.00 an ounce, while US gold futures fell 0.53% to USD 1,856.70 an ounce.

(Reporting by Chibuike Oguh in New York; editing by Jonathan Oatis)