US stocks drop, dollar up after jobs data dashes rate expectations

FE Team | Published: January 10, 2025 21:52:23

LONDON, Jan 10 (Reuters): The dollar rallied, while US stocks fell sharply on Friday after data showed the US economy created far more jobs in December than expected, reinforcing the belief among investors that US interest rates may not fall much this year.
The Labour Department said nonfarm payrolls rose by 256,000 in December, up from November's downwardly revised 212,000 and above expectations for a rise of 160,000 in a Reuters poll of economists.
The unemployment rate fell to 4.1 per cent versus expectations for an unchanged reading of 4.2 per cent.
The dollar, which is set for a sixth weekly rise against a basket of major currencies, bounced 0.4 per cent to 109.68, driven up by a steep rise in US Treasury yields, leaving the euro , yen and sterling down after the data.
The S&P 500 fell 0.9 per cent in early trading, while the Nasdaq dropped more than 1 per cent. US markets were closed on Thursday to mark the funeral of former President Jimmy Carter.
Shares in small cap companies, which can be more vulnerable to fluctuations in interest rates, came under the most intense pressure, leaving the Russell 2000 down 1.7 per cent on the day.
"Strong jobs creation and low unemployment are often indicators of a healthy economy - naturally a cause for optimism, but potentially causing slight disappointment for investors hoping for further interest rate cuts," Richard Flynn, managing director at Charles Schwab UK, said.
Markets show traders now expect the Federal Reserve to cut interest rates by just 30 basis points over the course of this year, compared with cuts worth about 45 bps before the employment data.
Benchmark 10-year US Treasury yields surged to trade 8 bps higher on the day at 4.761 per cent, from 4.7 per cent earlier, marking a new 14-month high.
"The jump in bond yields looks set to continue, which is bad news for equities. Could a 5 per cent yield on the 10-year Treasury really be hit? Any hope of a quiet start to the year has well and truly disappeared now," Premier Miton Investors chief investment officer Neil Birrell said.