Investing.com - Here are the top five things you need to know in financial markets on Monday, February 5:
1. Global Bond Yields Continue Higher; U.S. 10-Year Bond Hits 2.88%
Global bond yields continued this year's rally, as expectations of higher inflation and talk of central bank policy tightening boosted borrowing costs.
The U.S. 10-year note rose to an intraday high of 2.883%, a level not seen since January 2014. It was last at 2.856%, up 0.4 basis points, or roughly 0.2%.
The benchmark yield has not been above 3% since late 2013 and some investors believe that level will be tested in the weeks ahead amid expectations that an economy boosted by tax reform will compel further policy tightening from the Federal Reserve this year.
Meanwhile, in Europe, bond yields in Germany jumped, with the 10-year Bund reaching multi-year highs, bolstered by the view that the European Central Bank is getting closer to ending its massive stimulus program.
Recent chatter that the world's leading central banks will start tightening monetary policy faster than previously thought has sparked a global bond market selloff this year, with yields in the U.S., Europe and Asia all spiking higher.
2. World Stocks Extend Biggest Selloff In Two Years
The worst selloff in world stocks in over two years deepened, as expectations of rising inflation and a sudden climb in government bond yields spooked investors.
Asian equities were covered in a sea of red, with Japan's Nikkei tumbling 2.5%, its biggest daily drop in 15 months. Benchmarks in Australia, South Korea and Taiwan all suffered declines of over 1%.
In Europe, the continent's bourses suffered a sharp selloff at the open, as weakness seen in markets overseas weighed on sentiment.
On Wall Street, U.S. stock futures pointed to a lower open, extending the rout equity markets experienced on Friday when the benchmark S&P 500 and Dow benchmarks notched their worst week since early January 2016.
Dow futures were down nearly 120 points, or 0.5%, while S&P 500 and Nasdaq futures also pointed to losses at the open.
Rising bond yields can crimp demand for assets perceived as riskier, such as stocks, particularly when those yields are higher than those of equities.
3. Dollar Pauses After Jobs Report Gives It A Boost
The U.S. dollar paused against a basket of currencies after rallying at the end of last week on upbeat U.S. jobs data, which showed wages last month recorded their largest annual gain in more than 8-1/2 years.
The data contributed to the sentiment that inflation is picking up, laying some groundwork for potentially more aggressive Federal Reserve interest-rate hikes this year.
The majority of economists believe that the U.S. central bank will hike rates three times this year. However, the market is now adjusting to the possibility that the Fed could raise rates four times in 2018.
The dollar index, which gauges the U.S. currency against a basket of six major rivals, stood little changed at 88.90, after rising 0.6% on Friday, its biggest single day gain in three months.
Monday's calendar features an ISM survey on service sector activity for January at 10:00AM ET (1500GMT).
4. Bitcoin Prices Sink Below $8,000
Bitcoin prices were on the backfoot, sinking to the lowest levels since November as a selloff sparked by fears over tighter regulation of cryptocurrencies deepened.
Bitcoin was last down around 13% at $7,961 on the Bitfinex exchange. It fell to as low as $7,751 at one point, the weakest level since November 19.
Ethereum, the world’s second largest cryptocurrency by market cap, was down 12% at $809.95.
Meanwhile, Ripple's XRP token was trading at $0.78100, down around 17% for the day.
Bitcoin and rival cryptocurrencies have been hit by a range of factors, including fears over tighter regulation and ongoing concerns over digital currency tether and its ability to collapse the bitcoin market.
5. Oil Slumps as U.S. Output Keeps Rising
Oil prices started the week in negative territory, as traders weighed a steady increase in U.S. output against OPEC's ongoing efforts to drain the market of excess supplies.
U.S. West Texas Intermediate crude futures shed 37 cents, or 0.6%, to $65.08 per barrel, while Brent futures dipped 50 cents, or 0.7%, to $68.08 per barrel.
Fears that rising U.S. output would dampen OPEC’s efforts to rid the market of excess supplies dampened sentiment, according to market participants.
The number of oil drilling rigs climbed for a second week in a row, General Electric (NYSE:GE)'s Baker Hughes energy services firm said in its closely followed report on Friday. It rose by six to 765 last week, implying that further gains in domestic production are ahead.