LONDON - Stock markets slid and the dollar firmed Monday after a forecast-busting US jobs report fanned expectations of more Federal Reserve interest rate hikes to cool sky-high inflation.
Adding to the downbeat mood were geopolitical concerns after the United States shot down a suspected Chinese spy balloon that had floated across the country for days.
Equity market rallies enjoyed through January have largely stopped as investors contemplate an extended period of high borrowing costs aimed at bringing inflation down from multi-decade highs.
London's benchmark FTSE 100 index, however, struck an all-time high Friday, with analysts saying bad news, such as expectations of UK recession throughout this year, was priced in.
The British capital's top index has benefitted also from some strong company earnings, including record profits from energy giant Shell, and renewed investment from abroad amid pound weakness.
But it was down 0.8 percent in afternoon trading on Monday.
"Having hit a new all-time high..., the FTSE 100 opened the new trading week with a hangover," noted Russ Mould, investment director at AJ Bell.
"Throwing cold water over the party were stronger than expected jobs figures in the US, something closely monitored by the Federal Reserve when making interest rate decisions."
Eurozone stock markets were also down, as were leading indices in Asia.
Wall Street opened lower, with the Dow shedding 0.3 percent at the start of trading, as investors continued to reel from Friday's job data.
A softer tone from the Fed regarding its monetary tightening campaign had allowed market participants to entertain the possibility of a pause to rate hikes, or even a cut, later in the year.
READ | Stock markets rise, dollar struggles on US rates outlook
But that optimism was dealt a heavy blow Friday by data showing more than half a million new jobs were created in the United States last month, nearly double the December figure and far more than the 188,000 expected.
Government figures also showed unemployment fell to the lowest level since 1969.
The reading showed the world's biggest economy remained strong despite almost a year of rate hikes and soaring prices, indicating the Fed still had plenty of work to do to rein in inflation.
"We are concerned that on the back of this kind of jobs report, it definitely holds the Fed to a higher-for-longer path," said Lisa Erickson at US Bank Wealth Management.
Briefing.com analyst Patrick O'Hare noted that more than two-thirds of market participants now expect a third quarter-percentage-point hike in May, compared to one-third last Thursday.
But he said investors are also grappling with the high valuations of many stocks even as earnings are falling.
"Market participants know that things are running too hot in the stock market and that many of the stocks that have gone parabolic need to cool down a bit," he said.
In Asia on Monday, Mumbai stocks fell again with embattled tycoon Gautam Adani's troubled empire suffering more big losses.
Flagship Adani Enterprises gained more than 1,000 percent in five years before a rout begun last week on allegations of fraud at India's biggest conglomerate.