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.
US President Donald Trump says he has yet to decide whether the US will join Israel militarily in its campaign against Iran.
Asked whether the US was getting closer to striking Iran’s nuclear facilities, Mr Trump said: “I may do it. I may not do it.”
Speaking outside the White House on Wednesday, he added: “Nobody knows what I’m going to do…Iran’s got a lot of trouble, and they want to negotiate.
“And I said, ‘why didn’t you negotiate with me before all this death and destruction?'”
Mr Trump said Iran had reached out to Washington, a claim Tehran denied, with Iran’s mission to the UN responding: “No Iranian official has ever asked to grovel at the gates of the White House.”
Iran’s supreme leader, Ayatollah Ali Khamenei said Iran would not surrender and warned “any US military intervention will undoubtedly cause irreparable damage” to US-Iranian relations.
Read more:
Why did Israel attack Iran?
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The families caught up in Iran-Israel attacks
Strikes continue
Hundreds have reportedly died since Iran and Israel began exchanging strikes last Friday, when Israel launched an air assault after saying it had concluded Iran was on the verge of developing a nuclear weapon, a claim Tehran denies.
Israel launched three waves of aerial attacks on Iran in the last 24 hours, military spokesman Brigadier General Effie Defrin has said.
Israel deployed dozens of warplanes to strike over 60 targets in Tehran and western Iran, including missile launchers and missile-production sites, he said.
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Can Iran’s leadership be toppled?
“The aim of the operation is to eliminate the existential threat to the State of Israel, significantly damage Iran’s nuclear programme in all its components, and severely impact its missile array,” he said.
Early on Thursday Israel issued an evacuation warning to residents of the Iranian Arak and Khandab regions where Iran has heavy water reactor facilities. Heavy water is important in controlling chain reactions in the production of weapons grade plutonium.
Meanwhile Iran says it has arrested 18 people it describes as “enemy agents” who it says were building drones for the Israelis in the northern city of Mashhad.
Iran also launched small barrages of missiles at Israel on Wednesday with no reports of casualties. Israel has now eased some restrictions for its civilians.
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The US is working to evacuate its citizens from Israel by arranging flights and cruise ship departures, the US ambassador to the country has said.
In the UK, Sir Keir Starmer chaired a COBRA emergency meeting on the situation in the Middle East, with a Downing Street spokesperson saying: “Ministers were updated on efforts to support British nationals in region and protect regional security, as well as ongoing diplomatic efforts”.
A senior US senator who supports Donald Trump has told Sky News why he believes the US would be right to intervene in Iran.
Senator Ted Cruz, a Republican from Texas who ran against Mr Trump in 2016 but now backs him, told US correspondent David Blevins that Iran is an “acute threat to the national security of the US”.
He went on to claim that because “Iran is also building ICBMs (intercontinental ballistc missiles)” and “You don’t need an ICBM to go to Israel”, it indicated Iran’s intention “to take a nuclear weapon to the United States to murder Americans”.
“Nobody is talking about invading Iran,” Mr Cruz added. “We’re not going to see boots on the ground.”
Middle East latest: Trump says he ‘may or may not’ strike Iran
It comes after the US president said he “may do it, I may not do it” when asked if he would launch a strike against Iranian nuclear facilities.
So far, Israel has been attacking Iran alone since it ramped up its military action last Friday, launching strikes against what it says are Tehran’s facilities for developing a nuclear weapon and also destroying its air defences.
Iran has always denied seeking the ability to make a nuclear weapon from its uranium enrichment programme.
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Blevins’s fellow US correspondent Mark Stone says that while figures like Mr Cruz back military action, “a whole host of other figures are saying ‘do not do it'”.
“The social media space is absolutely full of MAGA [Make America Great Again] figures from the right… saying ‘we absolutely must not go into Iran’.”
If the US were to decide to take military action against Iran, it could have implications for the UK, as America may ask to station refuelling aircraft at a British base in Cyprus and B-2 bombers, which could carry the bunker buster bombs required to attack Iran’s Fordow nuclear enrichment facility, could launch from the British base of Diego Garcia.
Mr Cruz told Sky News that while many of Mr Trump’s support base did not want to see the US involve itself in another war, “the overwhelming majority of Americans, nearly 80%, support President Trump, and support President Trump defending us against an Iranian nuclear weapon.”
America is deploying more fighter planes to the Middle East in a “demonstration of force” as tensions escalate and speculation about a possible US strike on Iran continues.
Pictures and flight tracking data show F-35 jets and tanker aircraft being moved towards the region, as well as the tasking of an aircraft carrier, providing options in case President Donald Trump decides to intervene in the conflict.
But one particular aircraft that has not been seen just yet – the B-2 stealth bomber – could reveal the most about America’s intentions towards Iran…
Why is America moving more aircraft to the Middle East?
“It’s giving them options,” says military analyst Michael Clarke. “They have got four types of aircraft – including fighters, interceptors and fighter-bombers – all in the right region.”
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Clarke: What could US involvement look like as Iran attacks ease
The new arrivals can be spread around several existing military bases that the US has in the region in Bahrain, Qatar, UAE, Kuwait and Saudi Arabia.
“More is better and also it’s a demonstration of force,” Prof Clarke added. “There’s a political element behind it, to show the Iranians what they can do, but also to other allies.
“The Americans want to be taken seriously in all of this.”
A Boeing KC-46A Pegasus, primarily used for aerial refueling, is seen on tracking in the eastern Mediterranean. Pic: Flightradar24
Analysis: What aircraft have moved to the region?
Sky News analysis of flight-tracking data shows more than 30 US military planes have been active over parts of Europe and the Mediterranean Sea over the past three days.
These include planes used for reconnaissance, refuelling in mid-air as well as carrying cargo.
Map of US military bases in the Middle East
An air-traffic control recording from the US suggests F-22 Raptors are being sent across the Atlantic. Two refuelling tankers are visible on flight tracking data leaving the US east coast, likely escorting the stealth fighter jets.
In images taken by photographer Glenn Lockett in Suffolk, three US air tankers were seen flying over England, each accompanied by four F-35 jets.
F-35s are one of the most advanced warplanes in the world, known for their ability to evade enemy radar.
A US air tanker seen flying over England, accompanied by F-35 jets. Credit: Instagram/g.lockaviation
Flight tracking data shows that the tankers travelled to the Mediterranean and then returned to the UK.
Most of the US military planes tracked by Sky News regularly turn off their locations and final destinations, according to the data from Flightradar24.
Some of the planes moved from the US to Europe, while others appeared to move closer to the Middle East. At least five of the US military aircraft landed at Chania Airport on the Greek island of Crete.
An air-traffic control recording from the US also suggests F-22 Raptors are being sent across the Atlantic. Two refuelling tankers are visible on flight tracking data leaving the US east coast, likely escorting the stealth fighter jets.
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US insists deployments are defensive
US defence secretary Pete Hegseth stressed that the deployment of more aircraft was defensive in nature, as Washington looks to safeguard its forces in the region.
Fighter aircraft have been used to shoot down drones and projectiles in the past.
America already has a substantial force in the Middle East, with nearly 40,000 troops as well as air defence systems, aircraft and warships.
But as the conflict between Israel and Iran carries on – and President Trump continues to make threats against Tehran – it’s possible that multiple options could be on the table for intervention.
B-2 bombers – the ones to watch?
Asked what he’s looking out for as speculation about whether the US will intervene directly continues, Prof Clarke pointed to one particular aircraft that hasn’t been seen moving towards the region yet: The B-2 stealth bomber.
Known for its iconic triangle shape and ability to penetrate deep air defences undetected, the B-2 has lesser-known capability that could be crucial for any action over Iran: it can carry ‘bunker buster’ bombs.
So far Israel has not been able to damage Iran’s secretive Fordow uranium enrichment plant, which is buried deep beneath a mountain.
A B-2 stealth bomber flies over Washington DC during a 4 July celebration. File pic: AP
The only bomb believed to be powerful enough to penetrate the facility is America’s GBU-57, a 14-ton bomb that is so heavy it can only be launched from the US fleet of heavy bomber aircraft.
Any movement of B-2 bombers to the joint UK-US base on Diego Garcia in the Indian Ocean could “indicate the likelihood that the Americans are going to use bunker busters in Iran,” Prof Clarke says.
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