The dollar took a breather on Monday after surging to a seven-month high, while emerging, commodity and bond markets were jittery after strong U.S. jobs data boosted bets for a December rate hike by the U.S. Federal Reserve.
European and Asian shares both started the week in a subdued mood as a fresh batch of soft Chinese trade data added to the uncertainty surrounding what is increasingly expected to be the Fed's first hike in almost a decade. By contrast, Tokyo's Nikkei index leapt 2 percent as the yen fell sharply against the dollar, and hopes for more stimulus following weak data from Beijing saw Chinese stocks jump 1.5 percent, but they were exceptions. Wall Street was expected to start 0.3 percent lower while a solid rebound in German exports failed to prevent traders in Europe cashing in some profits after bourses there hit 2-1/2 month highs last week. French carmaker Renault also helped drive the region lower as its shares slid 2 percent after the country's prime minister, Manuel Valls, said on Sunday the government did not want the firm to merge with Japanese partner Nissan.
"Market participants are of the view (after strong U.S. jobs data on Friday) that the worries about the global economy are overdone but then this weekend we saw some disappointment in the China exports," said Emile Cardon, a strategist at Rabobank in the Netherlands. "Emerging markets are in the doldrums again and that is having a negative impact on sentiment." The dollar also saw some modest profit-taking against the euro and sterling during the European morning after its post-payrolls surge, although it continued to squeeze higher against the yen. It had advanced to a 2-1/2-month peak of 123.49 yen. The euro was higher at $1.0772 having struck a 6-month trough of $1.0704 on Friday. However, downward pressure on the euro is unlikely to dissipate any time soon. Four policymakers at the European Central Bank who spoke to Reuters said a consensus was forming there to take its deposit rate - the rate it charges banks to park money - deeper into negative territory in December. "Let's go for a big cut," said one Governing Council member, who asked not to be named. Another said the deposit rate could go from -0.20 percent to -0.50 percent or even -0.70 percent.
Emerging Asian currencies and stocks, which took the brunt of some heavy global selling over August and September were back in the firing line as the prospect of a Fed hike next month loomed ever larger. There was little in terms of U.S. data on the slate to get economists excited but it wasn't only Beijing's trade data that was nagging at China watchers. In its bi-annual economic outlook report, the Organisation for Economic Co-operation and Development (OECD) reiterated its view that the world's second biggest economy would continue to slow and cautioned that the government's stimulus was not sustainable over the longer run.
India's rupee slumped to its weakest in more than six weeks after Prime Minister Narendra Modi's heavy defeat in Bihar's state election raised concerns that the government would struggle to pass policy reforms that markets have been hoping for. The Philippine peso also hit a six-year low. The South Korean won, the Malaysian ringgit and the Thai baht touched one-month troughs. Indonesia's rupiah fell to its weakest in more than two weeks.
After the U.S. jobs data, which saw the largest gain in jobs since last December and the unemployment rate fall to 5.0 percent, it lowest since April 2008, interest rates futures were now pricing in a 70 percent probability that the U.S. central bank will raise borrowing costs next month. Treasury yields continued to creep higher in Europe after soaring on Friday. The key 2-year yield, the most sensitive to a near-term ra
te hike, was at a 5-1/2-year high of 0.8982. Europe's benchmark German Bund yields were being dragged higher too, while Portuguese government bond yields hit a 10-week high after leftist parties agreed to form an alternative government to try to oust the centre right in a vote this week. There was also uncertainty in neighbouring Spain, where Catalonia's regional assembly voted yesterday in favour of a resolution to split from Spain, energising a drive towards independence.