US stocks fall after jobs data boosted expectations of Fed tightening

US stocks fell after the latest batch of data on the labor market showed employment continued at a solid pace last month, reinforcing expectations of a violent tightening in monetary policy from the Federal Reserve.

The benchmark S&P 500 fell 1.7 percent, with the high-tech Nasdaq Composite down 2.7 percent.

The report from the Labor Department showed that the world’s largest economy added 390,000 jobs last month, which is modestly lower than the 436,000 jobs in April. However, May’s numbers still beat expectations at 325,000.

Investors are watching the state of the labor market with keen interest as they assess how quickly they can expect the Federal Reserve to raise interest rates. Policymakers have already raised the central bank’s key interest rate by 0.75 percentage points this year, and are expected to follow that up with more aggressive monetary policy as they try to rein in inflation. As the Fed seeks to boost maximum employment, an overheating job market could add to inflationary pressures.

Peter Bokfar, chief investment officer at Bleakley Advisory Group, noted that although the numbers were not a “blast” performance, they still reinforce expectations for a “strong Fed response”.

US government debt came under some selling pressure after the jobs report, as the yield on the sensitive monetary policy of two-year Treasuries rose 0.05 percentage point to 2.68 percent. The 10-year yield, which closely tracks the long-term economic outlook, rose 0.05 percentage point to 2.96 percent.

Both of these benchmark bond yields have jumped since the start of the year but are back from recent highs.

In stocks, shares in Tesla fell about 5 percent at the open then Reuters reported That Elon Musk told employees he had a “very bad feeling” about the economy and that the automaker might need to cut about 10 percent of its workforce.

Meanwhile, the regional Stoxx Europe 600 index gave up earlier gains, retreating gradually for the day, after closing the previous session 0.6 percent higher. The German DAX also declined after the US open. UK markets are closed for a public holiday, as are markets in Hong Kong and mainland China.

European shares began trending lower after eurozone retail sales in April fell 1.3 percent from the previous month, the first monthly decline since the beginning of the year. On a year-over-year basis, sales were up 3.9 percent. Economists polled by Reuters had expected a monthly increase of 0.3 percent and an annual increase of 5.4 percent.

Analysts at ING said weak consumer confidence and rising inflation have weighed on the region’s economy. “While this decline may overestimate aggregate consumption developments, it provides further evidence of a serious slowdown in the eurozone,” they wrote.

The retail sales figure came after stronger-than-expected economic data from Germany, where the country’s exports rose 4.4 percent between March and April.

Brent crude rose by nearly $118 a barrel. On Thursday, OPEC and its allies reached an agreement Accelerate oil production In July and August. The dollar index, which measures the greenback against a basket of six others, rose 0.2 percent.