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Stocks drop, dollar up after US jobs information dashes rate expectations

The dollar rallied, while U.S. stocks fell sharply on Friday after data revealed the U.S. economy developed even more jobs in December than anticipated, reinforcing the belief among investors that U.S. rates of interest might not fall much this year.

The Labor Department said nonfarm payrolls rose by 256,000 in December, up from November's downwardly modified 212,000 and above expectations for an increase of 160,000 in a Reuters survey of economists. The unemployment rate fell to 4.1% versus expectations for a the same reading of 4.2%.

The dollar, which is set for a sixth weekly increase against a basket of significant currencies, bounced 0.4% to 109.68, driven up by a steep rise in U.S. Treasury yields, leaving the euro, yen and sterling down after the information.

The S&P 500 fell 0.9% in early trading, while the Nasdaq dropped more than 1%. U.S. markets were closed on Thursday to mark the funeral of former President Jimmy Carter.

Shares in little cap companies, which can be more vulnerable to changes in interest rates, came under the most intense pressure, leaving the Russell 2000 down 1.7% on the day.

Strong jobs creation and low unemployment are typically indications of a healthy economy-- naturally a cause for optimism, however possibly triggering minor dissatisfaction for investors expecting more rate of interest cuts, Richard Flynn, handling director at Charles Schwab UK, stated.

Markets reveal traders now expect the Federal Reserve to cut rates of interest by just 30 basis points over the course of this year, compared to cuts worth about 45 bps before the work data.

Standard 10-year U.S. Treasury yields rose to trade 8 bps greater on the day at 4.761%, from 4.7% earlier, marking a new 14-month high.

The jump in bond yields looks set to continue, which is bad news for equities. Might a 5% yield on the 10-year Treasury truly be hit? Any hope of a peaceful start to the year has well and truly disappeared now, Premier Miton Investors chief investment officer Neil Birrell said.

Yields have actually vaulted higher this week, as issue about rising inflation and higher interest rates activated a broad selloff in the worldwide bond market that pressed long-dated borrowing costs to multi-year highs.

The turmoil in the fixed earnings market has actually struck UK government bonds especially hard, pushing 30-year gilt yields to their highest given that 1998, as investors grow increasingly worried about Britain's financial resources.

The pound fell for a 4th day, coming by as much as 0.91% to $1.2194, its lowest since November 2023. It last traded down 0.6% at $1.224.

In products, oil costs shook off the effect of a. stronger dollar, increasing practically 5% to $80.40 a barrel, as traders. concentrated on prospective supply disruptions from more sanctions on. Russia.

Gold, on the other hand, rose 0.8% on the day to $2,690 an. ounce, defying a more powerful dollar and the tasks data.

(source: Reuters)