US stocks dropped after the latest batch of data on the labour market showed hiring continued at a robust pace last month, reinforcing expectations for aggressive tightening in monetary policy from the Federal Reserve.

The blue-chip S&P 500 index fell 1.7 per cent, with the tech-heavy Nasdaq Composite index off as much as 2.7 per cent.

The report from the labour department showed the world’s biggest economy added 390,000 jobs last month, modestly below the 436,000 in April. However, the May figures still exceeded expectations for 325,000.

Investors are keeping a keen eye on the state of the jobs market as they assess how quickly they expect the Fed to raise interest rates. Policymakers have already lifted the central bank’s main rate by 0.75 percentage points this year and are expected to follow up with further aggressive tightening of monetary policy as they attempt to tamp down inflation. While the Fed seeks to foster maximum employment, an excessively hot jobs market can add to inflationary pressures.

Peter Boockvar, chief investment officer at Bleakley Advisory Group, noted that while the numbers were not a “blowout” performance, they still reinforce expectations for an “aggressive Fed response.”

US government debt came under some selling pressure following the jobs report, with the yield on the monetary policy sensitive two-year Treasury note rising 0.05 percentage points to 2.68 per cent. The 10-year yield, which more closely tracks the longer term economic outlook, rose 0.05 percentage points to 2.96 per cent.

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

In equities, shares in Tesla fell about 5 per cent at the open after Reuters reported that Elon Musk told employees he had a “super bad feeling” about the economy and that the automaker may need to cut about 10 per cent of its workforce.

Meanwhile, the regional Stoxx Europe 600 gauge gave up earlier gains, inching lower for the day, having closed the previous session 0.6 per cent higher. Germany’s Dax also eased following the US open. UK markets were closed for a public holiday, as were markets in Hong Kong and mainland China.

European shares began heading lower after April eurozone retail sales fell 1.3 per cent from a month before, the first monthly drop since the start of the year. On a year-on-year basis, sales rose 3.9 per cent. Economists polled by Reuters had expected a 0.3 per cent monthly rise and a 5.4 per cent yearly increase.

Analysts at ING said weak consumer confidence and high inflation had weighed on the region’s economy. “While this decline may overstate total consumption developments, it does provide further evidence of a serious eurozone slowdown,” they wrote.

The retail sales figure followed on from stronger than expected economic data from Germany, with the country’s exports rising 4.4 per cent between March and April.

Brent crude rose close to $118 a barrel. Opec and its allies on Thursday reached an agreement to accelerate oil production in July and August. The dollar index, which measures the US currency against a basket of six others, moved 0.2 per cent higher.