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Stocks retreat, Treasuries flail as US rate cut hopes wither

FILE PHOTO: Bull and bear symbols for successful and bad trading are seen in front of the German stock exchange (Deutsche Boerse) in Frankfurt

By Naomi Rovnick and Koh Gui Qing

NEW YORK/LONDON (Reuters) -Global stocks pulled back from an all-time high on Friday after surprisingly strong U.S. monthly jobs data dimmed hopes that the Federal Reserve would soon follow euro zone and Canadian interest rate cuts, causing Treasury yields to shoot higher.

The world's largest economy added 272,000 jobs last month, beating the 185,000 hires predicted by economists and derailing an investor consensus that the jobs market had slackened just enough to push consumer prices lower.

"This is a strong report, and it suggests that there are no signs of any cracks in the labor market," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

"It's a plus for the economy and a plus for corporate earnings, but it's a negative in terms of the prospects of a rate cut perhaps as early as September."

Diminished hopes for a near-term Fed move weighed on stocks, which closed lower after a choppy session. The MSCI's world share index dropped 0.3%, after touching a record high of 797.48 points.

Wall Street finished in the red. The S&P 500 fell 0.1% after hitting an all-time high of 5,375.08 points. The Dow Jones Industrial Average edged down 0.2%, and the Nasdaq Composite also lost 0.2%.

The benchmark 10-year U.S. Treasury yield, a benchmark for borrowing rates globally, leapt over 15 basis points after the jobs report, to 4.4335%, its biggest one-day jump in about two months.

The two-year yield, which tracks interest rate expectations, climbed nearly 17 basis points to 4.8868%, following six straight days of declines until Thursday. Bond yields rise as prices fall.

Money market pricing just after the payrolls data implied traders saw the Fed only starting to cut rates from their 23-year high of 5.25-5.5% by November. U.S. interest rate futures also lowered the chances of the Fed's cutting rates by 25 basis points in September to 56%, down from around 70% on Thursday, according to LSEG's Fedwatch.

A September move had been strongly expected earlier in the day, particularly after the European Central Bank made a widely expected decision to cut its deposit rate from a record 4% to 3.75% on Thursday.

The Bank of Canada on Wednesday became the first Group of Seven nation to trim its key policy rate, following cuts by Sweden's Riksbank and the Swiss National Bank.

Following the jobs report, euro zone rate pricing also went into reverse, with traders now pricing 55 bps of cuts in the region this year, down from 58 bps before the data.

Europe's Stoxx 600 share index, which has gained almost 10% year-to-date, lost 0.2%.

Euro zone bonds were also lackluster on Friday, with Germany's 10-year Bund yield rising 8 bps to 2.618%.

Elsewhere, the dollar rose 0.8% against a basket of currencies, having been set for a weekly loss before the jobs data. The euro dropped 0.8% to $1.0802 a day after a slight gain.

Brent crude oil futures lost 0.6% to $79.36 per barrel. The stronger dollar weighed on spot gold, which dropped 3.6% to $2,290.59 an ounce.

(Editing by Christina Fincher, William Maclean, Leslie Adler and Richard Chang)