Bond yields rise after US jobs report smashes forecasts – as it happened

Closing post

The US Federal Reserve will be “agonising” about how high it should push US interest rates, says Charles Hepworth, Investment Director at GAM Investments:

Hepworth says:

“The US jobs report for September smashed all expectations with 336,000 new additions to the workforce, compared to a forecast of a much more modest addition of 171,000 jobs.

This hot jobs report saw strong gains in the service sector, with hospitality recording big increases in new hires. This augers well for the sector as obviously increased hiring reflects buoyant demand. However, it would be remiss to ignore that some of this re-hiring is just normalisation back to levels pre-pandemic. It certainly isn’t reflective of an economy that is slowing perhaps as quickly as the Federal Reserve hopes for.

Even if wage growth increased less than expected, the odds of a further hike from current levels has to be higher than it was prior to this report (and it was high already). Bond bears are still in full control with yields across the Treasury curve pushing to near term highs and this is reflecting in a level of angst for equity markets which remain under pressure with the higher for longer narrative now having to be finally accepted.

The Fed must also be agonising of how much it needs to continue to do before the economy succumbs to higher and higher rates.”

Dollar on track for 12th weekly gain in a row

Today’s bumper US payrolls report has prompted a choppy session pulling European markets off their highs of the day, as we look to close out a third week of declines on a positive note, reports Michael Hewson of CMC Markets.

He adds:

The DAX has struggled this week, slipping to a 6-month low a couple of days ago, while the FTSE250 fell to an 11-month low.

The FTSE100 has performed slightly better managing to hold above its September lows, but the pressure being exerted by the prospect of higher long-term rates is certainly taking its toll on appetite for stocks.

Currently the FTSE 100 index is up 13 points, or 0.17%, at 7464 points.

President Biden’s council of economic advisers have published a handy thread on today’s jobs report:

Back in the UK, the Financial Times are reporting that a group of Metro Bank bondholders offered the bank a £600m capital injection on Monday.

However, Metro – which said yesterday it was evaluating various options to bolster its capital – has yet to accept the offer, according to two people familiar with the matter.

The FT explains:

The challenger bank sent representatives for the consortium of bondholders a letter on Friday morning that acknowledged the offer, which is still on the table, according to one of the people.

The bondholders’ offer came before Metro approached investors this week about a separate fundraising plan for a similar amount to shore up its balance sheet. Existing investors, who could lose money if the bank fails, are looking to bolster its capital position and avoid it running into difficulty.

Strongest monthly jobs growth since January

Mike Bell, Global Liquidity Market Strategist at J.P. Morgan Asset Management, agrees that today’s very strong payrolls data increases the probability of another rate hike from the Federal Reserve this year.

However, the more investors believe a recession can be avoided, the more likely an eventual recession becomes, Bell fears.

Here’s why:

“If enough people believe that rates can stay high without causing a recession, then the subsequent rise in long bond yields that we have seen in recent months increases the eventual risk of recession by raising borrowing costs.

“Our base case is therefore still for a mild recession sometime in 2024. But even in a recession, we don’t expect rates to be cut back down to zero.

UK government bonds are also weakening, pushing up the cost of borrowing.

The yield, or interest rate, on benchmark 10-year gilts has risen to around 4.62%, from 4.55% last night.

There’s a weak start to trading on Wall Street, after the strong jobs report fuelled concerns over high interest rates.

The Dow Jones industrial average has lost 174 points, or 0.5%, to 32,945 in early trading, while the broader S&P 500 is down 0.75%.

Jobs report will spook bond market

Bond yields jump after strong jobs report

Glassdoor’s lead economist Daniel Zhao has analysed today’s jobs report, and says:

“The summer weather is sticking around in the labor market as the September jobs report shows hot job gains. As the labor market stays in its holding pattern, we’re one month closer to exiting without a recession. Resilient jobs growth shows there is some cushion for the Federal Reserve’s efforts to cool inflation without causing job losses.”

Today’s jobs report shows signs of an unexpected surging payroll growth with 336,000 jobs added. Leisure and hospitality sector provided well above average monthly job gains (+96,000) jobs, likely due to the ramp of the upcoming holiday season.

While labor force participation held at 83.5%, female labor participation decreased to 77.4%. In future months, we are watching this number closely as expiring federal childcare funding could sideline working mothers.