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.
Read more on Sky News:
Wetherspoons toasts first annual profits since pandemic
Metro Bank kicks off £3bn mortgage book sale
Musk could be made to testify in Twitter sale investigation
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 agreed to send “top of the line weapons” to NATO to support Ukraine – and threatened Russia with “severe” tariffs if it doesn’t agree to end the war.
Speaking with NATO secretary-general Mark Rutte during a meeting at the White House, the US president said: “We’ve made a deal today where we are going to be sending them weapons, and they’re going to be paying for them.
“This is billions of dollars worth of military equipment which is going to be purchased from the United States, going to NATO, and that’s going to be quickly distributed to the battlefield.”
Pic: Reuters
Weapons being sent include surface-to-air Patriot missile systems and batteries, which Ukraine has asked for to defend itself from Russian air strikes.
Mr Trump also said he was “very unhappy” with Russia, and threatened “severe tariffs” of “about 100%” if there isn’t a deal to end the war in Ukraine within 50 days.
The White House added that the US would put “secondary sanctions” on countries that buy oil from Russia if an agreement was not reached.
Later on Monday, Ukrainian leader Volodymyr Zelenskyy thanked Mr Trump and said he was “grateful” for the US president’s “readiness to help protect our people’s lives”.
After criticising Vladimir Putin’s “desire to drag it out”, he said he appreciated “preparing a new decision on Patriots for Ukraine” – and added Kyiv is “working on major defence agreements with America”.
It comes after weeks of frustration from Mr Trump over Mr Putin’s refusal to agree to an end to the conflict, with the Russian leader telling the US president he would “not back down” from Moscow’s goals in Ukraine at the start of the month.
Please use Chrome browser for a more accessible video player
Trump threatens Russia with ‘severe’ tariffs’
During the briefing on Monday, Mr Trump said he had held calls with Mr Putin where he would think “that was a nice phone call”, but then “missiles are launched into Kyiv or some other city, and that happens three or four times”.
“I don’t want to say he’s an assassin, but he’s a tough guy,” he added.
Earlier this year, Mr Trump told Mr Zelenskyy “you’re gambling with World War Three” in a fiery White House meeting, and suggested Ukraine started the war against Russia as he sought to negotiate an end to the conflict.
After Mr Trump’s briefing, Russian senator Konstantin Kosachev said on Telegram: “If this is all that Trump had in mind to say about Ukraine today, then all the steam has gone out.”
Read more:
Trump announces 30% tariff on EU imports
Trump threatens to revoke US comedian’s citizenship
Two women killed after shooting at US church
Listen to The World with Richard Engel and Yalda Hakim every Wednesday
Meanwhile, Mr Zelenskyy met with US special envoy Keith Kellogg in Kyiv, where they “discussed the path to peace” by “strengthening Ukraine’s air defence, joint production, and procurement of defence weapons in collaboration with Europe”.
He thanked both the envoy for the visit and Mr Trump “for the important signals of support and the positive decisions for both our countries”.
US
Trump is clearly fed up with Putin – but will his shift in tone force Russia to the negotiating table?
As ever, there is confusion and key questions are left unanswered, but Donald Trump’s announcement on Ukraine and Russia today remains hugely significant.
His shift in tone and policy on Ukraine is stark. And his shift in tone (and perhaps policy) on Russia is huge.
Ever since Mr Trump returned to the White House he has flatly refused to side with Ukraine over the Russian invasion.
He has variously blamed Ukraine for the invasion and blamed Joe Biden for the invasion, but has never been willing to accept that Russia is the aggressor and that Ukraine has a legitimate right to defend itself.
Today, all that changed. In a clear signal that he is fed up with Vladimir Putin and now fully recognises the need to help Ukraine defend itself, he announced the US will dramatically increase weapons supplies to Kyiv.
Pic: Reuters
But, in keeping with his transactional nature and in a reflection of the need to keep his isolationist “America-First” base on side, he has framed this policy shift as a multi-billion dollar “deal” in which America gains financially.
American weapons are to be “sold” to NATO partners in Europe who will then either transfer them to Ukraine or use them to bolster their own stockpiles as they transfer their own existing stocks to Kyiv.
“We’ve made a deal today,” the president said in the Oval Office. “We are going to be sending them weapons, and they are paying for them. We are manufacturing, they are going to be paying for it. Our meeting last month was very successful… these are wealthy nations.”
Please use Chrome browser for a more accessible video player
What will Trump’s weapons deal mean for Ukraine?
This appears to be a clever framing of the “deal”. Firstly, America has always benefited financially by supplying weapons to Ukraine because much of the investment has been in American factories, American jobs and American supply chains.
While the details are not entirely clear, the difference now appears to be that the weapons would be bought by the Europeans or by NATO as an alliance.
The Americans are the biggest contributor to NATO, and so if the alliance is buying the weapons, America too will be paying, in part, for the weapons it is selling.
However, if the weapons are being bought by individual NATO members to replenish their own stocks, then it may be the case that the US is not paying.
NATO officials referred all questions on this issue to the White House, which has not yet provided clarity to Sky News.
It is also not yet clear what type of weapons will be made available and whether it will include offensive, as well defensive, munitions.
Please use Chrome browser for a more accessible video player
Will Trump’s deal make a difference?
A key element of the package will likely be Patriot missile batteries, 10 to 15 of which are believed to be currently in Europe.
Under this deal, it is understood that some of them will be added to the six or so batteries believed to be presently in Ukraine. New ones would then be purchased from US manufacturers to backfill European stocks. A similar arrangement may be used for other weapons.
Listen to The World with Richard Engel and Yalda Hakim every Wednesday
The president also issued the Russian leader with an ultimatum, saying that Putin had 50 days to make a peace deal or else face 100% “secondary tariffs”. It’s thought this refers to a plan to tariff, or sanction, third countries that supply Russia with weapons and buy Russian oil.
This, the Americans hope, will force those countries to apply pressure on Russia.
But the 50-day kicking of the can down the road also gives Russia space to prevaricate. So, a few words of caution: first, the Russians are masters of prevarication. Second, Trump tends to let deadlines slip. And third, we all know Trump can flip-flop on his position repeatedly.
Read more:
BBC breached editorial guidelines over Gaza documentary
Air India plane suffered ‘no mechanical fault’ before crash
Please use Chrome browser for a more accessible video player
‘Trump sides with the Ukrainian cause’
Maybe the most revealing aspect of all this came when a reporter asked Mr Trump: “How far are you willing to go if Putin sends more bombs in the coming days?”
“Don’t ask me questions like that…”
Mr Trump doesn’t really know what to do if Mr Putin continues to take him for a ride.
Mr Biden, before him, supplied Ukraine with the weapons to continue fighting.
If Mr Trump wants to end this, he may need to provide Ukraine with enough weapons to win.
But that would prolong, or even escalate, a war he wants to end now.
There’s the predicament.
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Sports2 years agoButton battles heat exhaustion in NASCAR debut
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike