Stocks, bonds tumble as stellar US jobs report may force Fed rethink

<html xmlns=""><head><title>GLOBAL MARKETS-Stocks, bonds tumble as stellar US jobs report may force Fed rethink</title></head><body>

Treasuries and German bonds fall

Dollar bounces off of 9-month lows

Sentiment hurt by weak earnings from U.S. tech giants

Adds payrolls report, updates prices

By Naomi Rovnick

LONDON Feb 3 (Reuters) -Global stocks and Treasury prices tumbled on Friday after an unexpectedly strong U.S. jobs report indicated the Federal Reserve may need to keep interest rates elevated to control inflation.

This placed another roadblock in the way of a weeks-long markets rally that stumbled in U.S. after hours trading on Thursday over disappointing earnings from Google GOOGL.O, Apple AAPL.O and Amazon AMZN.O.

S&P 500 futures ESc1 slid 1.1%, contracts on the tech-heavy Nasdaq 100 NQc1 dropped 1.8%.

The MSCI index of global shares .MIWD00000PUS fell 0.3%, having hit its highest level since August on Thursday in a rebound buoyed by optimism that central banks are close to the end of their aggressive rate hiking cycles.

The keenly-watched U.S. nonfarm payrolls report showed U.S. employers added 517,000 new workers in January, vastly overshooting expectations of economists polled by Reuters for a 185,000 gain.

Average hourly wages, which analysts and investors focus on for clues about whether a tight labour market may continue to fan the flames of inflation, rose 0.3%, matching economists' forecasts.

The yield on the 10-year Treasury, which underpins borrowing costs worldwide, added 11 basis points (bps) to 3.51% after the jobs data. US10YT=RR The two-year Treasury yield US2YT=RR, which follows traders' expectations of Fed fund rates, rose by 12 bps to 4.24%.

The Fed hiked its main interest rate by 25 bps to a range of 4.5% to 4.75% on Wednesday, taking benchmark borrowing costs to their highest since late 2007, and signalled more hikes to come. The European Central Bank and the Bank of England also raised rates on Thursday to contain inflation.

"In a year when the economic data is more important than the Fed, the January employment report clearly justified the Fed having tightened by 425 bps over the past 10 months," said Jack McIntyre, portfolio manager at Brandywine Global.

Ahead of the nonfarm payrolls data, markets had priced two U.S. rate cuts by year-end FEDWATCH on hopes the U.S. economy was cooling enough to quell inflation but not on course for a downturn that could reduce companies’ earnings more than markets were already counting on.

U.S. tech shares took a beating in after-hours trading on Thursday after Apple projected another revenue decline in the start of the year, Amazon warned that its operating profit could fall to zero in the current quarter, and Google parent Alphabet missed fourth-quarter profit and revenue expectations.

"We will see headwinds from further earnings downgrades, but we have incorporated quite a lot (of this) already so I think markets can hold here if we are indeed right on the Fed,” said Willem Sels, global chief investment officer at HSBC's private bank, who expects the U.S. central bank to raise rates just one more time in 2023.

An index measuring the dollar against major currencies =USD stood at 102.53, rising further from recent nine-month lows of 100.80.

In Europe, the Stoxx 600 share benchmark fell 0.4%. Germany's benchmark 10-year bond yield DE10YT=RR rose 13 bps to 2.14%, having on Thursday dropped by the most since 2011 as prices shot higher.

The euro EUR=EBS traded at $1.0841, down 0.65% and pulling further away from Thursday's 10-month top of $1.1033.

Asia stock markets

Asia-Pacific valuations

Additional reporting by Stella Qiu in Sydney
Editing by Dhara Ranasinghe, Toby Chopra, John Stonestreet and Sharon Singleton

To read Reuters Markets and Finance news, click on For the state of play of Asian stock markets click on: 0#.INDEXA

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