Strong US labour market data intensified inflation concerns and pushed bond yields higher, increasing pressure across global financial markets.
The first full week of the new year has been dominated by US macro data. December’s non-farm payrolls report, released on Friday, showed strong US jobs growth, accompanied by a decline in the unemployment rate and solid growth in earnings. The report underscored the strength of the US economy.
However, this was a case of good news for the economy not necessarily being good news for financial markets. Concerns that continued US economic strength may lead to further inflationary pressures have driven longer-term bond yields higher and reduced expectations of further Federal Reserve rate cuts. With the presidential inauguration a week away, much remains dependent upon the Trump administration's policy agenda though.
The increase in US rates is piling pressure on bond markets and currencies globally. The UK gilt market has come under greater scrutiny, particularly following the Autumn Budget which drew attention to increased public spending plans necessitating additional government borrowing and corporate sector tax increases. Recent corporate trading updates have highlighted the implications for costs and hiring intentions. The UK’s fiscal position however is not greatly dissimilar to those of other major economies.
