Australia

Australian shares are headed downward this morning after a dreadful day for global stock markets. Positive indicators for the US economy, including strong employment numbers and an expanding services sector, bolstered fears of a July interest rate hike.

ASX futures were lower Friday morning, having sunk 88 points or 1.3% as of 6:00am.

US stocks and bonds sold off on Thursday after another round of strong economic data solidified expectations of further interest rate increases.

The S&P 500 and the tech-heavy Nasdaq Composite each shed 0.8%. The Dow Jones Industrial Average dropped 366 points, or 1.1%. All 11 sectors of the S&P 500 closed in the red. It was the worst performance since May.

Despite long-running fears that the economy is headed for a recession, economic data continues to show a resilient US economy. That has raised concerns that the Federal Reserve, which will hold its next policy meeting at the end of this month, will hold interest rates higher for longer than investors had hoped as it seeks to curtail inflation.

In commodity markets, Brent crude oil shed 0.1% to US$76.57 a barrel while gold dropped 0.2% to US$1,911.84.

Australian government bonds were higher, with the 2 Year yield increasing to 4.19% and the 10 Year yield rising to 4.12%. US Treasury notes were also higher, with the 2 Year yield leaping to 5.00% and the 10 Year yield reaching 4.04%.

The Australian dollar dipped to 66.24 US cents from its previous close of 66.55. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged down to 97.59.

Asia

Chinese shares ended lower in tandem with regional stocks. The focus remained on US Treasury Secretary Janet Yellen's visit to Beijing for signs of how the US-China relationship is faring. Pharmaceutical companies and consumer stocks led the session's losses. Jiangsu Hengrui Medicine fell 2.2% and China Tourism Group Duty Free Corp. declined 1.6%. The benchmark Shanghai Composite Index closed 0.5% lower at 3205.57, the Shenzhen Composite Index fell 0.4% and the tech-heavy ChiNext Price Index declined 0.9%.

Hong Kong stocks ended the session sharply lower. The benchmark Hang Seng Index slid 3.0% to settle at 18533.05. Nearly all index constituents weakened. Sands China slumped 5.3%, Citic lost 5.1% and Budweiser Brewing fell 4.9%. Consumer goods companies also declined, with sportswear retailer Anta down 4.4% and dairy product company China Mengniu losing 4.1%. Analysts pointed to a range of negative factors weighing on sentiment, including intensified worries over the Fed's tightening plan, a weaker yuan against the dollar and continued uncertainty over US-China relations.

Japanese stocks ended lower, dragged by falls in electronics shares as concerns resurfaced about further tightening by the Fed. Renesas Electronics dropped 4.2% and TDK shed 4.0%. Chip designer Socionext tumbled 23% following news that its biggest shareholders plan to sell their stakes. The Nikkei Stock Average fell 1.7% to 32773.02.

India's Sensex index rose 0.5% to close at a record of 65785.64, bucking the downtrend across most regional equity markets. Investors likely shrugged off weak global developments and focused on quarterly business updates from companies ahead of the earnings season beginning next week. Among the top performers, Mahindra & Mahindra climbed 5.0%, Power Grid Corp. of India added 3.8% and Tata Motors was up 2.1%. KEC International rose 3.8% after it won INR10.42 billion of new orders.

Europe

European stocks retreated after mostly downbeat trading in Asia and ahead of an expected lower US open. The pan-European Stoxx Europe 600 dropped 2.4%, while Germany’s DAX lost 2.6% and France’s CAC 40 fell 3.1%. Tech and property stocks were among the biggest losers.

"The Federal Reserve has affirmed its hawkish stance, indicating interest rate hikes are likely in the near future," IG analysts wrote. "This has caused stocks to decline and bond yields to rise in the Asia-Pacific region."

In London, the FTSE 100 widened the previous day's fall, closing down 2.2% to 7280 points with almost all stocks in the red. Concerns mounted that UK interest rates will rise yet again.

"While the calls for rates to hit 7% seem a little over-eager, they do have further to go, diminishing the already limited appeal of the FTSE 100 for income hunters," IG Group chief market analyst Chris Beauchamp said in a note.

Miners Glencore and Antofagasta led the fallers, closing down 5.5% and 5.3%, respectively. Water companies United Utilities and Severn Trent were the only stocks closing in positive terrain, up 1.5% and 0.2%.

North America

US stocks and bonds sold off on Thursday after another round of strong economic data solidified expectations of further interest rate increases.

The S&P 500 and the tech-heavy Nasdaq Composite each shed 0.8%. The Dow Jones Industrial Average dropped 366 points, or 1.1%. All 11 sectors of the S&P 500 closed in the red. It was the worst performance since May.

Despite long-running fears that the economy is headed for a recession, economic data continues to show a resilient US economy. That has raised concerns that the Federal Reserve, which will hold its next policy meeting at the end of this month, will hold interest rates higher for longer than investors had hoped as it seeks to curtail inflation.

The Institute for Supply Management said Thursday that its index of services activity rose to 53.9 in June from 50.3 in May. A reading above 50 indicates expansion.

"I don't see how inflation falls that much when these growth numbers are that strong," said Christian Chan, chief investment officer of AssetMark. "You have to think about what the logical policy response might be."

US stocks have charged higher in 2023, surprising many investors who thought high inflation and rising interest rates would crimp returns. Thursday's selloff raises the question of whether the market is vulnerable to a reversal.

The private sector added 497,000 jobs in June, payroll-services firm ADP said Thursday. That was well above the forecast from economists polled by The Wall Street Journal. The construction sector added 97,000 jobs in June, the biggest month-over-month increase in at least a decade.

The ADP report has typically shown smaller employment gains than the nonfarm payroll data supplied by the Labor Department over the past several months, said Nadia Lovell, senior US equity strategist for global wealth management at UBS. That has raised concerns that the official data for June, due Friday, will be especially strong.

"I think people are on the edge of their seats for tomorrow," she said.

Economists surveyed by The Wall Street Journal expect to see that the economy added 240,000 jobs last month, down from the 339,000 added in May. The unemployment rate is expected to have ticked down to 3.6% from 3.7%.

The Federal Reserve held interest rates steady at its meeting last month after 10 consecutive increases, but officials signaled that further raises could be possible at its meeting this month. Minutes from the June meeting, released Wednesday, did little to dispel expectations of an increase.

"It just feels like the data has cemented a July hike and even, possibly, another in September," said UBS's Lovell.

Energy stocks fell 2.4%. Crude oil futures were little changed, settling at $71.80 per barrel. Consumer discretionary stocks fell 1.6%.

Bank stocks slipped in response to higher bond yields. The KBW Nasdaq Bank Index fell 1.6%. Morgan Stanley shares slipped 3%.