The US saw a huge rise in new jobs last month. Why are the markets treating this like bad news?
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.
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.
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.”
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.
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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.
The US has abstained from a UN General Assembly vote on a resolution it drafted on the war in Ukraine after the body approved amendments proposed by European countries.
The vote took place on the same day the 193-member assembly approved a competing European-backed resolution from Ukraine which demanded Russia immediately withdraw from the country.
The duelling proposals reflect the tensions that have emerged between the US and Ukraine after Donald Trump suddenly opened negotiations with Russia in a bid to quickly resolve the conflict.
It also underscores the strain in the US’ relationship with Europe over the Trump administration’s decision to engage with Moscow.
Follow latest: Ukraine war live updates
The US-drafted resolution, marking the third anniversary of Russia’s invasion of Ukraine, had called for an end to the conflict but did not mention Moscow’s aggression.
It also made no mention of Ukraine’s territorial integrity.
However, it was amended after European nations said that it should include references to Russia’s full-scale invasion of Ukraine and the need for a lasting peace in line with the UN Charter.
It was also amended to include references to Ukraine’s sovereignty.
The amended US-drafted resolution won 93 votes in favour, while 73 states abstained – including the US – and eight – including Russia – voted no.
Meanwhile, there were 93 votes in favour of the Ukraine-backed resolution, while 65 abstained and 18 voted against it.
The UK, France and Germany were among the countries that voted in favour of the Ukraine-backed resolution, which called for a “comprehensive, just and lasting peace in Ukraine”.
The US, Russia, Belarus and North Korea were among those that opposed it.
The US voted against Ukraine’s resolution. Pic: AP
The outcome marks a setback for the Trump administration in the UN General Assembly, whose resolutions are not legally binding but are seen as a barometer of world opinion.
However, the result also shows some diminished support for Ukraine – as more than 140 nations had voted to condemn Russia’s aggression in previous votes.
The United States had tried to pressure the Ukrainians to withdraw their resolution in favour of its proposal, according to a US official and a European diplomat.
US deputy ambassador Dorothy Shea, meanwhile, said multiple previous UN resolutions condemning Russia and demanding the withdrawal of Russian troops “have failed to stop the war,” which “has now dragged on for far too long and at far too terrible a cost to the people in Ukraine and Russia and beyond”.
“What we need is a resolution marking the commitment from all UN member states to bring a durable end to the war,” Ms Shea said.
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Dorothy Shea said the war has ‘dragged on too long’. Pic: Reuters
The world is marking the third anniversary of Russia’s war in Ukraine as America’s allies try to navigate a new reality as Washington’s stance appears to favour Moscow.
European leaders were dismayed last week when they and Ukraine were left out of preliminary talks on ending the conflict.
Mr Trump has called Ukrainian President Volodymyr Zelenskyy a “dictator,” falsely accused Kyiv of starting the war and warned that he “better move fast or he is not going to have a country left”.
Mr Zelenskyy responded by saying the US president was living in a Russian-made “disinformation space”.
Meanwhile, French President Emmanuel Macron is at the White House holding talks with Mr Trump to discuss a peace plan for Ukraine.
At the start of the meeting, Mr Trump told reporters Russian President Vladimir Putin will accept European peacekeepers in Ukraine as part of a potential deal to end the war in the country.
Mr Trump and Mr Macron have been meeting after the pair had earlier joined a call between G7 leaders.
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Trump on Ukraine’s territory: ‘We’ll see’
UK Prime Minister Sir Keir Starmer, who will meet with Mr Trump at the White House on Thursday, appeared virtually and said G7 nations should be ready to “take on more risk”.
Canadian Prime Minister Justin Trudeau, who was in Kyiv, called Russia’s aggression a war on “our way of life”.
European Commission president Ursula von der Leyen said Europe’s “first priority” is to strengthen Ukraine’s resistance.
She said this includes speeding up the delivery of weapons and increasing investment, announcing a further €3.5bn (about £3bn) in aid for Ukraine.
An American Airlines flight travelling from New York to New Delhi was diverted midair due to a “bomb threat”.
Flight 292 landed at Rome’s Leonardo da Vinci Rome Fiumicino Airport “due to a possible security issue,” the airline said in a statement on Sunday, adding later the threat “was determined to be non-credible”.
The airline did not clarify what the security issue was, but a source familiar with the situation told Sky News’ US partner network NBC News it was a bomb threat sent via email.
The Federal Aviation Administration said the crew reported the security issue.
“Safety and security are our top priorities, and we apologise to our customers for the inconvenience,” the airline said in a statement.
The view from the cockpit of the fighter jet. Pic: Italian air force/Reuters
Pic: Italian air force/Reuters
The flight requested a diversion to Rome’s Leonardo da Vinci Rome Fiumicino Airport at around 2pm local time, Roberto Rao, a spokesperson for the airport.
“We immediately agreed and organised a safe landing,” Mr Rao told NBC News.
“We don’t know what the security concern was, but my opinion is that it was serious enough to divert the plane, but not urgent, because we received the alert when the plane was over the Caspian Sea, a three hours’ flight from Rome.”
Once in Italian airspace, the plane was escorted by two Italian air force fighter jets and landed in Rome at around 5.30pm local time.
The flight on the ground in Rome. Pic: AP
‘What’s going on here?’
Neeraj Chopra, one of the 199 passengers on board, said the captain announced the plane had to turn around about three hours before it was supposed to land in New Delhi because of a change in “security status”.
Mr Chopra, who was traveling to India to visit family, described the mood on board as calm until the captain later announced that fighter jets would be escorting their plane to Rome.
“I felt a little panic of, okay, what’s going on here?” Mr Chopra told the Associated Press. “There’s got to be like something bigger going on here.”
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Jonathan Bacon, 22, added that once on the ground, all passengers were loaded on to buses and taken to the terminal, where each passenger and their personal items underwent additional security screenings that were time-consuming and felt “slightly heightened”.
More than two hours after landing, Mr Bacon and his friend said they were still waiting for their checked baggage. “It was definitely the longest flight to Europe I’ve ever taken,” he said.
American Airlines said the plane was inspected and cleared to depart again for New Delhi “as soon as possible” on Monday, after the crew gets some rest.
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