Stock markets turn lower as timing of global interest rate cuts put in doubt

European stock markets turned lower as healthy US jobs report tempered expectations that the Federal Reserve would be in as much as a hurry as once thought to cut interest rates.

Government bond yields across the world had tumbled this week on expectations that central banks, including the ECB, would be forced to cut interest rates to mitigate a serious slowdown in the global economy.

Irish Government 10-year bond yields which had traded close to zero earlier this week retraced some ground to trade at 0.09%.

But that still implies the Irish Government could if it were to choose to tap international debt markets for almost free money.

President Donald Trump again repeated his call on the Federal Reserve to cut rates and analysts still expect it to cut interest rates but that the timing of the rate cuts is now more clouded following the US jobs report.

"The [US] data this week were consistent with a continued slowdown in economic growth, but don’t yet look weak enough to convince the Fed to cut interest rates immediately. We suspect that chair Jerome Powell will use his semi-annual testimony to Congress next week to push back against expectations of a rate cut later this month," said Andrew Hunter, senior US economist at Capital Economics.

Capital Economics said that the good US job report hit stock US stock markets "presumably because investors are concerned that US economy won’t hold up so well in the absence of aggressive monetary easing".

The economics firm warned, however, that the slowing growth in the eurozone and China will undermine US company earnings and mean the S&P 500 index will end the year 15% below its current level.

The losses in the US stock market followed broad dips in European equities after German data showed industrial orders had fallen far more than expected in May, and a warning from the economy ministry that this sector of Europe’s largest economy was likely to remain weak in the coming months.

“Devastating new orders data just undermined any hopes for an industrial rebound. We are starting to lose our optimism,” said Carsten Brzeski, chief economist at ING Germany.

And in Britain, employers and shoppers are turning increasingly cautious, indicators showed, suggesting two of the drivers of the economy during the Brexit crisis are losing momentum.

The latest signals from Britain’s boardrooms and high streets underscored the extent of the slowdown following a strong start to 2019.

That was when many companies were rushing to prepare for the original Brexit deadline in March.

The latest figures showed that the subsequent slowdown in the economy was not just payback for the stockpiling surge.

“Brexit stagnation continues to seize up the jobs market as the slowdown in recruitment activity continues,” said James Stewart, vice chair at KPMG which produces the report with REC.

Data also showed Britain’s high street retailers had a “washout” June, as shoppers did not respond to early summer sales discounts.

“We saw retailers discount early on in June, adding further pressure to tight margins, yet they still weren’t able to salvage the month,” said Sophie Michael, head of retail at BDO.

Additional reporting Reuters