NEW YORK, June 4 — Global equity markets fell as US Treasury yields reached two-week highs yesterday after data showed the American economy generated a greater-than-expected number of jobs in May, signaling the Federal Reserve will likely continue raising interest rates in its effort to curb inflation.

The Labour Department’s closely watched employment report showed the US economy added 390,000 jobs in May, with the unemployment rate holding steady at 3.6 per cent for a third straight month, beating most analyst estimates.

Traders were hoping the jobs report would reveal stronger signs of weakness in the US economy that would help persuade the Fed to soften its stance on inflation and interest rates to avoid triggering a recession.

"It was strength across the board with the exception of retail trade, and the economy on the jobs front continues to power forward,” said Josh Wein, portfolio manager at Hennessy Funds in Chapel Hill, North Carolina.

"The Fed still needs to unfortunately destroy a little bit of demand and they are going to continue to do that for at least the next few meetings with 50-point rate hikes.” The MSCI world equity index, which tracks shares in 50 countries, was down 1.11 per cent. The pan-European STOXX 600 index was also down 0.26 per cent.

US Treasury yields advanced to two-week highs after the strong jobs data. Benchmark 10-year notes US10YT=RR were up at 2.9589 per cent, while the rate-sensitive two-year year note US2YT=RR gained and was up at 2.6647 per cent.

On Wall Street, all three major indexes were led lower by sell-offs in the technology, consumer discretionary, communication services, financials and industrials sectors.

The Dow Jones Industrial Average fell 0.98 per cent to 32,923.57, the S&P 500 lost 1.57 per cent to 4,111.41 and the Nasdaq Composite dropped 2.46 per cent to 12,013.45.

"Some of the rally (in equities) of late was due to the Fed acknowledging that in the fall they could reassess and take a pause perhaps. But the market is retracing some of their earlier losses and saying basically that’s all off the table,” Wein said.

The US dollar edged higher against a basket of currencies after the employment report. The dollar index =USD rose 0.403 per cent, with the euro EUR= down 0.27 per cent to US$1.0716.

Oil prices rose, buoyed by expectations that Opec’s decision to increase production targets by slightly more than planned will not affect tight global supply much and by rising demand as China eases Covid-19 pandemic-related restrictions.

Brent crude rose 1.96 per cent to US$119.92 a barrel while US West Texas Intermediate crude advanced 1.93 per cent to US$119.12.

Gold prices fell 1 per cent after bullion’s appeal was dented by the rise in the US dollar and Treasury yields following the strong jobs data.

Spot gold dropped 1.0 per cent to US$1,849.77 an ounce, while US gold futures fell 1.09 per cent to US$1,846.10 an ounce. — Reuters