One thing that quite often puzzles people who do not work in financial markets is their tendency to treat seemingly good news as bad.
We got a classic example on Friday with news that US employers added 336,000 jobs in September.
That was up from 227,000 in August (a figure itself revised higher from the previous 187,000) and way ahead of the 170,000 Wall Street had been looking for.
The numbers were, in the jargon, very “hot”.
Good news? Well, yes, if you are one of the Americans who was able to move into employment during the month or switch to a better-paid role elsewhere.
So far as markets were concerned though, it was anything but good news.
The figures suggest that the US economy is continuing to motor, despite the fact that the US Federal Reserve has raised interest rates 11 times since March 2022 to combat inflation.
That, in turn, means that the Fed may have to resume rate hikes – having not done so since 27 July.
Image: Both the Bank of England, pictured, and US Federal Reserve held off on imposing interest rate hikes last month
Accordingly, yields – which rise as the price falls – on US Treasury bonds spiked higher.
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The yield on two-year notes jumped to as high as 4.847%, having closed on Thursday evening at 4.716%, while the yield on 10-year US Treasuries, which had been 4.716% on Thursday evening, jumped to as much as 4.858%.
Yields are now approaching the multi-year highs hit earlier this week as markets started to price in the possibility of interest rates remaining higher for longer – a process that got under way in earnest towards the end of September.
Hetal Mehta, head of economic research at the wealth manager St James’s Place, said: “Today’s payrolls print was punchy, with the monthly change nearly double what the market was expecting and the highest since January.
“When we zoom out, we can still see evidence of an improvement in the labour market imbalance, but today’s print underscores the slow progress; the US still has far more job openings than it has people looking for work.
“This is clearly inconsistent with what the Fed requires to get inflation down, let alone signal rate cuts.”
Image: Both the Bank of England, pictured, and US Federal Reserve held off on imposing interest rate hikes last month
Seema Shah, chief global strategist at Principal Asset Management, added: “The blowout jobs report is maybe not so good news for markets.
“Not only does today’s report indicate the economy is almost too hot to handle and the Fed will need to respond with more rate hikes, it reinforces the higher for longer narrative that has been spooking bond markets for the past few weeks.”
What was particularly curious about the September numbers was that it seemed perfectly reasonable to expect a slowdown in job creation.
The long-running actors and writers strikes in the TV and film industry has depressed hiring in those industries, while the three-week old strike action being taken by the United Auto Workers union against Ford, General Motors and Stellantis can be expected to have a similar impact on the car manufacturing and car parts sectors.
That may have been the case. But subdued activity in those sectors was more than made up for by renewed hiring in the leisure and hospitality sectors where nearly 100,000 jobs were created during the month – finally taking the numbers employed in bars and restaurants back to the levels seen before the pandemic.
Other sectors that added more jobs during the month included healthcare, where 41,000 jobs were created during the month, and transport. The expected uplift created by the start of the new school and college year also had an impact.
Image: A weakening currency makes imports more expensive, placing upwards pressure on inflation
The impact of the numbers was felt in other asset classes. The main equity indices on Wall Street fell at the open, while on the foreign exchange markets – where the US dollar this week hit 150 yen for the first time in a year and capped a record unbroken 12-week winning run against the euro – saw the greenback resume its upward path.
The pound, after a decent 48 hours, also fell against the greenback and remains close to the levels against the US dollar it hit last March.
Not all the data released today was necessarily bad.
Average hourly earnings growth during September was up 0.2% month on month and up 4.2% on a year-on-year basis, which was slightly lower than the 4.3% seen in August.
That looks good for consumer spending on the whole, but not sufficiently strong to worry the Fed, although the latter has been looking for annual earnings growth to return to pre-pandemic levels of 2% to 3%.
The other key revelation was that the labour force participation rate – the proportion of people of working age who are in work or looking for work – was 62.8%.
That helps explain why, contrary to expectations, the unemployment rate was unchanged at 3.8% – the highest since February 2022.
The market had been looking for a slight fall to 3.7%, but the fact that the rate was unchanged speaks to the fact that more Americans of working age are entering the jobs market. The Fed will take comfort from that because, when more people are looking for work, employers have to pay less to attract them.
These latter developments do point to the “soft landing” that markets have craved.
But the overall conclusion is that the US economy is still growing sufficiently rapidly – and the jobs market sufficiently robust – for the Fed to raise interest rates at least one more time before the end of the year.
Donald Trump has said American troops will not be sent to Ukraine, but the US may provide air support as part of a peace deal with Russia.
A day after his extraordinary White House meeting with Ukrainian President Volodymyr Zelenskyy and the leaders of Kyiv’s European allies, the US president told Fox News “when it comes to security, [Europeans] are willing to put people on the ground. We’re willing to help them with things, especially, probably, by air”.
Mr Trump did not elaborate, but White House press secretary Karoline Leavitt told reporters US air support was “an option and a possibility”.
She said the US president “has definitively stated US boots will not be on the ground in Ukraine, but we can certainly help in the coordination and perhaps provide other means of security guarantees to our European allies”.
Air support could take many forms, including missile defence systems or fighter jets enforcing a no-fly zone – and it’s not clear what role the US would play under any proposed peace deal.
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4:14
What security guarantees could work?
Zelenskyy-Putin summit
It comes as planning for a possible Zelenskyy-Putin summit get under way. Talks between the Ukrainian and Russian president are seen by Mr Trump as vital to ending the war.
Sky News understands a meeting could happen before the end of the month, with Geneva, Vienna, Rome, Budapest, and Doha among the venues being considered.
Geneva, Switzerland, is considered the best option, with Rome or the Vatican disliked by the Russians and Budapest, Hungary, not favoured by the Ukrainians.
European allies are understood to want security guarantees to be defined before the meeting.
A NATO-like treaty, guaranteeing Ukraine’s allies would come to its defence in case of any future Russian attack, is being worked on and could be completed by next week.
Like the US, Sky News understands Italy is opposed to putting boots on the ground in Ukraine.
But EU diplomats are confident this is the best chance yet to stop the war, and allies could return to Washington in early September to celebrate any deal being struck.
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5:57
Sky’s Mark Stone takes you inside Zelenskyy-Trump 2.0
Trump still has doubts about Putin
Despite the renewed optimism about a peace deal following Monday’s White House summit, Mr Trump has admitted Vladimir Putin might not be sincere about wanting to end the war.
“We’re going to find out about President Putin in the next couple of weeks,” he told Fox News.
He’s previously threatened to put more sanctions on Russia if a peace deal isn’t reached, though previously set deadlines have been and gone.
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Russia launched its biggest air assault on Ukraine in more than a month on Monday night, sending 270 drones and 10 missiles, the Ukrainian air force said.
Ukraine’s European allies in the so-called Coalition of the Willing, an initiative spearheaded by Sir Keir Starmer and Emmanuel Macron, discussed additional sanctions to place on Russia on Tuesday.
Image: Boris Yeltsin (2L) and Bill Clinton (C) sign the 1994 Budapest Memorandum
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4:14
What security guarantees could work?
The Trump administration’s contradictory statements on possible security guarantees are causing concern here.
MP Lesia Vasylenko told Sky News it is not at all clear what the allies have in mind.
“Who is going to be there backing Ukraine in case Russia decides to revisit their imperialistic plans and strategies and in case they want to restart this war of aggression?”
For many Ukrainians, there is a troubling sense of deja vu.
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0:46
Ukrainian drone strikes Russian fuel train
In the 1994 Budapest Memorandum, Ukraine agreed to give up not land but its nuclear arsenal, inherited from the Soviet Union, in return for security assurances from Russia and other powers.
They know how that ended up to their enormous cost. Putin reneged on Russia’s side of the bargain, with his invasion of Crimea in 2014 and once again with his full-scale attack three and a half years ago.
We met veteran Ukrainian diplomat Yuri Kostenko, who helped lead those negotiations in the 90s.
Image: Veteran Ukrainian diplomat Yuri Kostenko helped lead the Budapest Memorandum negotiations
He said there is a danger the world makes the same mistake and trusts Vladimir Putin when he says he wants to stop the killing, something Mr Trump said he now believes.
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“It’s not true, it’s not true, Russia never, never, it’s my practices in more than 30 years, Russia never stop their aggression plans to occupy all Ukraine and I think that Mr Trump, if he really believes Mr Putin, it will be a very big mistake, Mr Trump, a very big mistake.”
Before the Alaska summit, allies agreed the best path to peace was forcing Mr Putin to stop his invasion, hitting him where it hurts with severe sanctions on his oil trade.
But Mr Trump has given up calls for a ceasefire and withdrawn threats to impose those tougher sanctions.
Instead, he has led allies down a different and more uncertain path.
Ukrainians we met on the streets of Kyiv said they would love to believe in progress more than anything, but are not encouraged by what they are hearing.
While the diplomacy moves on in an unclear direction, events on the ground and in the skies above Ukraine are depressingly predictable.
Russia is continuing hundreds of drone attacks every night, and its forces are advancing on the front.
If Vladimir Putin really wants this war to end, he’s showing no sign of it, while Ukrainians fear Donald Trump is taking allies down a blind alley of fruitless diplomacy.
Although there has been no confirmation from the Kremlin, Ukraine, the UK, and other Western allies say details of a post-war security agreement will be finalised in the coming days.
Image: Donald Trump and Volodymyr Zelenskyy at the White House on Monday. Pic: AP
What has been said so far?
Security guarantees have long been talked about as a way of ensuring peace in Ukraine when fighting comes to an end.
Since March, when the UK and France spearheaded a largely European ‘coalition of the willing’ and potential peacekeeping force, many have claimed it would be ineffective without American backing.
The US has repeatedly refused to be drawn on its involvement – until now.
He claimed that during the summit, the Kremlin had conceded the US “could offer Article-5 like protection”, which he described as “game-changing”. Article 5 is one of the founding principles of NATO and states that an attack on any of its 32 member states is considered an attack on them all.
Image: Donald Trump and Vladimir Putin in Alaska on Friday. Pic: Reuters/ Kevin Lamarque
This was bolstered by the US president himself after he met his Ukrainian counterpart in Washington on Monday. He said the pair had “discussed security guarantees”, which would be “provided by the various European countries” – “with coordination with the United States of America”.
Writing on X the following day, the Ukrainian leader said the “concrete content” of the security agreement would be “formalised on paper within the next 10 days”.
US reports say security agreement talks will be headed by Secretary of State Marco Rubio.
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5:57
Sky’s Mark Stone takes you inside Zelenskyy-Trump 2.0
What would security guarantees look like?
Very few details have emerged so far, despite the series of high-profile meetings.
Speaking to Fox News on Tuesday, Mr Trump said European nations are going to “frontload” the security agreement with soldiers.
“They want to have boots on the ground”, he told the broadcaster, referring to the UK, France, and Germany in particular.
He insisted the US would not send ground troops, adding: “You have my assurance and I’m president.”
Sir Keir Starmer said the coalition of the willing is “preparing for the deployment of a reassurance force” in the event of “hostilities ending”.
This was the original basis for the coalition – soldiers from various European and allied nations placed strategically across Ukraine to deter Russia from launching future attacks.
Image: Sir Keir Starmer and President Emmanuel Macron in Washington on Monday. Pic: AP
But troops alone are unlikely to be enough of a deterrent for Vladimir Putin, military analyst Sean Bell says.
“This is all about credibility and I don’t think boots on the ground is a credible answer,” he tells Sky News.
Stationing soldiers along Ukraine’s 1,000-mile border with Russia would require around 100,000 soldiers at a time, which would have to be trained, deployed, and rotated, requiring 300,000 in total.
Image: A map of the Ukrainian-Russian border
The entire UK Army would only make up 10% of that, with France likely able to contribute a further 10%, Bell says.
Several European nations would feel unable to sacrifice any troops for an umbrella force due to their proximity to Ukraine and risk of further Russian aggression.
“You’re not even close to getting the numbers you need,” Bell adds. “And even if you could, putting all of NATO’s frontline forces in one country facing Russia would be really dangerous – and leave China, North Korea, Iran, or Russia free to do whatever they wanted.”
History of failed security agreements in Ukraine
Current proposals for Ukrainian security guarantees are far from the first.
In December 1994, Ukraine signed the Budapest Memorandum alongside the UK, US, and Russia.
The Ukrainians agreed to give up their Soviet-inherited nuclear weapons in exchange for recognition of their sovereignty and a place on the UN’s Nuclear Non-Proliferation Treaty.
Twenty years later in 2014, however, Russia violated the terms with its illegal annexation of Crimea and the war between Russian-backed separatists and Ukrainian in the Donbas region.
Similarly, the Minsk Agreements of 2014 and 2015 were designed to bring an end to the Donbas war.
Mediated by France and Germany, they promised a ceasefire, withdrawal of weapons, and local elections in the separatist-occupied Donbas, but were repeatedly violated and failed to result in lasting peace.
‘Article 5-like protection’
When Mr Witkoff first mentioned security guarantees again, he described them as “Article 5-like” or “NATO-style”.
Article 5 is one of the founding principles of NATO and states that an attack on any of its 32 member states is considered an attack on them all.
It has only ever been invoked once since its inception in 1949 – by the US in response to the 9/11 attacks of 2001.
Russia has repeatedly insisted Ukraine should not be allowed to join NATO and cited the risk of it happening among its original reasons for attacking Kyiv in 2022.
NATO general-secretary Mark Rutte has said Ukrainian membership is not on the table, but that an alternative “Article 5-type” arrangement could be viable.
The alliance’s military leaders are due to meet on Wednesday to discuss options.
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But he stresses they are both key in providing the “flesh on the bones” to what the coalition of the willing has offered so far.
“It will be about trying to find things that make the Western commitment to the security of Ukraine enduring,” Bell adds.
US airpower, intelligence and a better Ukrainian military
Other potential options for a security agreement include air support, a no-maritime zone, intelligence sharing, and military supplies.
Imposing either a no-fly over Ukraine or no-maritime zone across the Black Sea would “play to NATO’s strengths” – as US air and naval capabilities alone far outstrip Russia’s, Bell says.
Sharing American intelligence with Kyiv to warn of any future Russian aggression would also be a “massive strength” to any potential deterrence force, he adds.
Ukraine is already offering to buy an extra $90bn (£66.6bn) in US weapons with the help of European funds, Mr Zelenskyy said this week.
And any security agreement would likely extend to other military equipment, logistics, and training to help Ukraine better defend itself years down the line, Bell says.
“At first it would need credible Western support, but over time, you would hope the international community makes sure Ukraine can build its own indigenous capability.
“Because while there’s a lot of focus on Ukraine at the moment, in five years’ time, there will be different governments and different priorities – so that has to endure.”