LONDON – Stock markets around the world took another pummeling Monday as investors continued to fret over rising U.S. bond yields.
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KEEPING SCORE: In Europe, Britain's FTSE 100 lost 1.4 percent to 7,343 while France's CAC 40 slid 1.4 percent to 5,288. Germany's DAX shed 1 percent to 12,654. Wall Street was poised to open lower with Dow futures and the broader S&P 500 futures down 1 percent.
WALL STREET'S LEAD: Market jitters have spread after last week's performance in U.S. stock markets, when they endured their worst week in two years amid worries over rising Treasury yields. Fears of a sharp drop have ratcheted higher after 2017's strong performance carried over into January. An upbeat U.S. jobs report showing higher than expected wage growth was the catalyst for the latest sharp sell-off on Friday, further stoking speculation the Federal Reserve will need to raise interest rates faster than expected to counter inflation. Higher bond yields make it more expensive for companies to borrow and potentially depresses the U.S. economy and earnings. They also can make bonds more attractive to investors than stocks.
MARKET INSIGHT: "We've seen a sharp increase in U.S. bond yields over the last week after the Federal Reserve released a more hawkish than expected statement (on Wednesday), alongside its monetary policy decision, and the jobs data reported a significant increase in earnings," said Craig Erlam, senior market analyst at OANDA in London. "Markets now have three rate hikes this year more than 50 percent priced in and some people are even anticipating a fourth, which is unusually ahead of current Fed forecasts."
GERMAN COALITION TALKS: Also weighing on confidence was the failure of prospective partners in Germany's new government to nail down a coalition deal. It remained unclear whether they would clinch an agreement before the day is over. Chancellor Angela Merkel's conservative Union bloc and the center-left Social Democrats originally set a Sunday deadline to wrap up talks on extending their alliance of the past four years but budgeted two extra days as a precaution when formal negotiations started Jan. 26. Still on the table are two points that are important to the Social Democrats: curbing the use of temporary work contracts and trying to narrow differences between Germany's public and private health insurance systems.
ASIA'S DAY: Japan's benchmark Nikkei 225 tumbled 2.6 percent to 22,682.08 and South Korea's Kospi shed 1.3 percent to 2,491.75. Hong Kong's Hang Seng index sank 1.1 percent to 32,245.22 and Australia's S&P/ASX 200 lost 1.6 percent to 6,026.20. Benchmarks in Taiwan and Southeast Asia also lost ground. Only mainland Chinese shares showed signs of life, with the Shanghai Composite reversing early losses to climb 0.7 percent to 3,487.50.
ENERGY: Oil futures extended losses. Benchmark U.S. crude slid 57 cents to $64.88 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, used to price international oils, fell 86 cents to $67.72 a barrel in London.
CURRENCIES: The euro fell 0.2 percent to $1.2440 while the dollar was 0.3 percent lower at 109.83 yen.
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