Global stocks slide on dimming prospects for sharp U.S. rate cut

By April Joyner
Updated
Traders work on the floor at the NYSE in New York

By April Joyner

NEW YORK (Reuters) - Stocks around the world fell on Monday after strong U.S. job gains tempered expectations the Federal Reserve will deliver a large interest rate cut at the end of July.

U.S. equities resumed their slide from Friday, when the June employment data was released, as hopes of a steep Fed rate cut faded. U.S. stocks were also weighed down by losses in shares of Apple Inc <AAPL.O>, following an analyst downgrade, and Boeing Co <BA.N>, after a Saudi Arabian airline said it would not proceed with an order for its jets.

European stocks edged lower. The STOXX 600 <.STOXX> ended down 0.1% as Deutsche Bank's <DBKGn.DE> announcement that it would cut 18,000 jobs around the world in a restructuring dragged down bank shares.

MSCI's gauge of emerging market equities <.MSCIEF> fell 1.3% as Asian shares closed lower and the dollar edged up in reaction to dampened expectations for a sharp Fed rate cut.

U.S. investment bank Morgan Stanley's decision to reduce its exposure to global equities due to misgivings about the ability of policy easing to offset weaker economic data also weighed on investor sentiment.

Federal Reserve Chairman Jerome Powell is scheduled to give testimony on monetary policy before Congress on Wednesday and Thursday, which some investors expect will provide clues regarding the likelihood of a rate cut from the U.S. central bank when it meets at the end of the month.

"There's a tug of war," John Carey, managing director at Amundi Pioneer Asset Management in Boston, said of U.S. economic data. "The jobs numbers make it appear that there's not a need for a rate cut, yet industrial activity remains sluggish."

The Dow Jones Industrial Average <.DJI> fell 115.98 points, or 0.43%, to 26,806.14, the S&P 500 <.SPX> lost 14.46 points, or 0.48%, to 2,975.95 and the Nasdaq Composite <.IXIC> dropped 63.41 points, or 0.78%, to 8,098.38.

MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.61%.

Benchmark 10-year U.S. Treasury notes <US10YT=RR> last fell 3/32 in price to yield 2.0528%, from 2.044% late on Friday.

CURRENCIES AND GEOPOLITICS

In currency markets, the Turkish lira <TRY=> weakened 1.9% against the dollar after President Tayyip Erdogan dismissed central bank Governor Murat Cetinkaya, whose four-year term was due to run until 2020, and replaced him with his deputy, Murat Uysal.

Erdogan sacked Cetinkaya for refusing the government's repeated demands for interest rate cuts, laying bare differences over the timing of cuts to revive the recession-hit economy.

The dollar index <.DXY> rose 0.13%, while the euro <EUR=> dropped 0.14% against the greenback to $1.1208.

The British pound <GBP=> edged down 0.1% to $1.2511 after hitting a six-month low against the dollar on Friday as a result of poor economic data and a rise in expectations that the Bank of England will cut interest rates.

Geopolitics were in focus in oil markets following news on Sunday that Iran would boost its uranium enrichment in breach of a cap set by a landmark 2015 nuclear deal. On Monday Iran said it had passed the 3.6% cap and may enrich at even higher levels.

Those developments were offset by concerns about slowing economic growth. Brent crude futures <LCOc1> fell 12 cents, or 0.19%, to settle at $64.11 a barrel, while U.S. crude futures <CLc1> rose 15 cents, or 0.26%, to settle at $57.66 a barrel.

Spot gold <XAU=> dropped 0.5% to $1,393.08 an ounce as the dollar rose.

(GRAPHIC-European stocks: https://tmsnrt.rs/2YHThhg)

(Reporting by April Joyner; Additional reporting by Stephanie Kelly in New York, Tom Arnold in London; Editing by James Dalgleish, Leslie Adler and Dan Grebler)