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Global stock markets gained ground on Monday, recovering from losses sparked by a strong U.S. jobs report last week that bolstered the case for sharp interest rate hikes, while the dollar weakened and government bond yields fell.

Markets quickly moved on Friday to price about a 70% chance that the U.S. Federal Reserve would raise rates by 75 basis points in September, sending two-year yields up 20 basis points and further inverting the curve.

Yet the broad Euro STOXX 600 gained 0.8% in early trade on Monday, led by cyclical and growth stocks, helping recover losses from Friday driven by the U.S. jobs report. Miners and technology stocks, hit hard in the previous week, led the gains. The MSCI world equity index, which tracks shares in 47 countries, added 0.2%, recovering losses of the same amount seen on Friday.

S&P 500 futures and Nasdaq futures were up 0.5% and 0.6%, respectively. The S&P 500 had ended lower on Friday, weighed down by tech stocks.

Yet higher rates remained squarely in focus for investors.

"Sectors like the higher rated tech stocks are still going to come under pressure for a while until we can see the Fed funds rate coming down," said Robert Alster, chief investment officer at Close Brothers Asset Management.

The jobs data raised the stakes for the July U.S. consumer prices report due on Wednesday, which could see a slight pullback in headline growth, but likely a further acceleration in core inflation.

"Our economists expect the headline (annual) rate to finally dip after energy prices have fallen of late," Deutsche Bank analysts wrote.

The risk of recession had earlier haunted equity markets, with MSCI's broadest index of Asia-Pacific shares outside Japan dipping 0.5%.

After surging on Friday following the solid U.S. non-farm payrolls data, most euro zone bond yields were lower. Germany's 10-year Bund yield fell slightly to 0.89%.

Italian bonds underperformed, with 10-year yields around 2 bps higher on the day at 3.04%. Italy's closely watched bond-yield gap over Germany was around 213 bps, versus 205 bps late on Friday.

Ratings agency Moody's cut Italy's outlook to "negative" from "stable" on Friday, weeks after Prime Minister Mario Draghi's resignation sparked fresh political uncertainty.

Two-year Treasury yields were up at 3.19%, some 40 basis points above 10-year yields.

Bonds also got a safe-haven bid due to unease over Beijing's sabre rattling against Taiwan as China conducts four days of military exercises around the island.

Economic surprises: https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwylxjpo/Pasted%20image%201659946938721.png

DOLLAR EXPECTIONALISM?

The U.S. dollar fell 0.3% versus a basket of currencies to 106.34, giving up some gains after strengthening on the jobs boom and the jump in yields.

It however gained 0.2% against the Japanese yen to 134.75 yen, after jumping 1.6% on Friday.

FX analysts were bullish on the greenback's prospects.

"Data like this will further any thoughts about 'U.S. exceptionalism' and is very positive for the USD against all currencies," said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank, referring to the U.S. jobs statistics.

The euro squeezed out slim gains to reach $1.021.

Bitcoin and other cryptocurrencies, which tend to act as a barometer for risk appetite, gained. Bitcoin was last up 3.9%.

Gold managed to bounce from the lows hit on Friday to rise 0.5% to $1,782. [GOL/]

Erasing earlier gains, Brent crude futures fell 1.8% to $93.26 a barrel. U.S. West Texas Intermediate crude CLc1 was at $87.54 a barrel, down 1.7%.

Italy spread: https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnaozovq/Pasted%20image%201659954465238.png