Fed rate rise fears weigh on US stocks

Stocks dropped as US equity markets reopened from the long Easter weekend on Monday and investors fretted that the Federal Reserve would keep lifting interest rates.

The S&P 500 slid 0.8 per cent in early trading, while the tech-heavy Nasdaq Composite fell 1.1 per cent.

Monday marked the first opportunity traders had to respond to data released on Friday showing the continued strength of the US labour market.

The US economy added 236,000 new positions last month, fewer than in February but not enough of a slowdown to discourage the central bank from making another rate rise to tamp down inflation, traders thought.

Investors had initially shrugged off warnings at the Fed’s last policy meeting that the central bank would make at least one more rate rise to bring price rises under control. However, futures markets are now pricing in a 73 per cent chance of an interest rate increase at next month’s meeting.

Treasury markets, which were open on Friday, had already sold off in response to the jobs data and prices inched down further on Monday morning. The yield on the benchmark 10-year note ticked up 0.01 percentage points to 3.40 per cent, while the two-year yield added 0.01 percentage points to reach 3.98 per cent. Yields rise when prices fall.

Traders will be closely watching for further signs of the likely direction of monetary policy later this week when the Bureau of Labor Statistics publishes updated consumer inflation figures. First-quarter earnings season also kicks off in earnest with results from a series of bellwether financial groups including JPMorgan Chase.

Economists expect inflation to dip to an annual rate of about 5.2 per cent and a month-on-month rate of 0.3 per cent, a level that Citi analyst Stuart Kaiser said would “mark modest deceleration . . . but remain too high for comfort and likely read negative for stocks”.

European markets remained closed for Easter Monday. Hong Kong was also closed. Japan’s Topix stock index added 0.6 per cent.