Stronger than expected jobs market raises fears of US interest rate rise

Today’s top stories

• The Labour party hailed its overwhelming victory in the Scottish constituency of Rutherglen and Hamilton West as proof that it is heading for Downing Street. The centre-left opposition party won nearly 60 per cent of the vote, with a 20 percentage point swing. Pollsters said the result could give Labour the chance of winning dozens of seats in Scotland in a general election next year.

• Moldova’s president has claimed Russia’s Wagner paramilitaries were behind a thwarted coup attempt that aimed to depose her as head of state as part of a campaign to destabilise the country. “The situation is really dramatic and we have to protect ourselves,” Maia Sandu said in an interview with the Financial Times.

• A group of Metro Bank bondholders contacted the UK lender’s board on Monday offering a £600mn capital injection, but the company has yet to accept the offer, according to two people familiar with the matter. 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.

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Good evening.

A surprisingly strong US labour market report reignited a bond market sell-off today as investors bet that the Federal Reserve would have to raise interest rates again if it is to bring inflation under control.

The US economy created 336,000 new jobs last month, according to Bureau of Labor Statistics data, far exceeding economists’ predictions, as companies in the world’s largest economy continued to hire despite an aggressive tightening of monetary policy by the Fed over the past 18 months.

New job openings were reported across all sectors of the economy from leisure and hospitality to healthcare and professional industries. Even the government maintained a healthy hiring rate, creating 73,000 new positions last month, despite the threat of a shutdown.

In addition, the number of positions created in August and July was revised up while the US unemployment rate remained at 3.8 per cent as the labour market showed no signs of cooling despite interest rates going from near zero to above 5 per cent since March 2022.

“Low unemployment and higher wages have helped middle class workers cope with higher prices and borrowing costs. However, as the Fed continues to fight inflation, the labour market will need to remain strong if we are to achieve the proverbial soft landing [for the US economy],” said Joseph R Gaffoglio, president of Mutual of America Capital Management.

The US bond market resumed its sell off in the morning session on Wall Street. Yields, which move in the opposite direction to prices, on longer-dated Treasuries rose to fresh 16-year highs as investors bet that US interest rates would stay “higher for longer”, with the possibility that the Fed could raise interest rates at its next meeting at the end of the month.

The yield on the 10-year US government bonds rose to 4.887 per cent while the yield on 30-year Treasuries rose to 5.05 per cent. Equities fell in morning trading in New York before reversing those losses by midday.

Rising bond yields threaten deeper economic turmoil, writes the Financial Times in its editorial today, as businesses and households face higher borrowing costs. A slowdown in the US economy will export volatility around the world, Mohamed El-Erian wrote ahead of the release of today’s jobs data.

Need to know: UK and Europe economy

The FT editorial board’s verdict on UK prime minister Rishi Sunak’s big speech on Wednesday? His plans “do not amount to a coherent programme to address the major challenges the country faces, long-term and short.” Here’s more detail on how cash diverted from the HS2 rail project will be deployed.

UK house prices dropped for the sixth consecutive month in September, according to mortgage provider Halifax, laying bare the effect of high mortgage rates on the property market as Britons struggle to afford new homes. The average house is now £278,601, down £15,000 from its peak of £293,500 reached in June last year. Meanwhile activity in the UK construction industry plunged in September, according to a new survey.

Russia is turning to increasingly irregular revenue-raising measures to fund its war in Ukraine, including one-off taxes and levies, including “voluntary donations” western businesses have to pay when leaving Russia.

Need to know: Global economy

The head of the IMF has said the “remarkable resilience” of the global economy this year has cut the chances of a painful recession in the coming quarters, even as she warned of weak growth over the next five years. Kristalina Georgieva highlighted “strong momentum” in the US economy while also singling out India as a bright spot.

The World Trade Organization cut its estimate by half for global exports growth, amid a manufacturing slowdown and increasing trade fragmentation. Ngozi Okonjo-Iweala, WTO director-general, said the projected slowdown was “cause for concern, because of the adverse implications for the living standards of people around the world”.

After a week of turmoil among the Republicans in the US House of Representatives following the ousting of Speaker Kevin McCarthy, party officials are worried about the loss a rainmaker who raised hundreds of millions of dollars. Here’s our guide to the contenders to succeed McCarthy.

Seizing opportunities to export green energy, food and critical minerals could transform Latin America’s fortunes, the head of the region’s biggest development bank told the Financial Times.

As Marrakech prepares to host the annual meetings of the World Bank and IMF, the FT in this special report highlights Morocco’s post-Covid bounceback in tourism despite last month’s earthquake, Casablanca’s ambition to be a leading gateway for investment into Africa, and the country’s emergence as the continent’s leading carmaker.

Bangladesh is grappling with a weakening economy as its government prepares to extend its nearly two decades in power after national elections in January. But for critics of prime minister Sheikh Hasina the shine is coming off the country’s economic miracle.

Need to know: business

ExxonMobil is in talks to buy Pioneer Natural Resources in what would be the oil supermajor’s biggest acquisition in more than two decades, according to people familiar with the matter. Pioneer is the largest oil producer in Texas and had a market capitalisation of $50bn at the close of trading on Thursday.

China’s Alibaba was accused of “possible espionage” at its Liège logistics hub in Belgium. European governments have been increasing scrutiny of the alleged risks posed by Chinese companies as part of a wider reassessment of the EU’s traditional openness to trade with Beijing.

The UK regulator Ofcom referred the $500bn cloud computing industry to the Competition and Markets Authority for an antitrust investigation, after finding that Microsoft and Amazon dominated the market. EU and US regulators are also examining cloud computing companies after customers complained about being “locked in” to a single provider.

TSMC, which controls 90 per cent of the global market for the most advanced made-to-order chips, has opened its first plant in the US, but the Taiwanese company has struggled with the American approach to construction and labour. An FT Big Read explains.

As a result of falling sales, insolvencies and disappearing finances, plant-based “meat” companies are rebranding by highlighting what they say are the sector’s health benefits.

Science round up

The World Health Organization recommended approval of a new malaria vaccine made by Oxford university that has shown sustained protection in children. The disease remains a significant global health threat, especially in Africa, although it is both preventable and curable.

A vaccine-like drug to prevent HIV, the virus that can lead to Aids, administered once a year, could be ready just after 2030, according to developer ViiV. VH184 is an antiretroviral designed to block the action of an enzyme that inserts the genetic code of the HIV virus into the host cell’s DNA.

Last month was the hottest September ever, passing the previous record by an “extraordinary” 0.5C to hit a global average of 16.38C. This year is likely to be the warmest year on record, the European earth observation agency said.

The Nobel Prize in Medicine went to a team whose discoveries led to the messenger RNA vaccines that played a key role in the battle against Covid-19. The physics prize went to a trio of scientists for advances in electron dynamics, showing how to create extremely short pulses of light that can be used to measure the movements of electrons. Chemistry went to the creators of “quantum dots”, tiny nanoparticles with applications in electronics ranging from display screens to medical technology. 

Moderna’s combined Covid and influenza vaccine was found to be as effective as separate shots in early trials, giving the US biotech company hope that approval could come by 2025.

An FT Big Read delves into the health controversy surrounding artificial sweeteners. Industry says they are a vital weapon against obesity and diabetes but scientists are far from fully understanding the impact of the products that have become ubiquitous on supermarket shelves.

Since Russia first invaded parts of Ukraine in 2014, the number of drug-resistant infections in western Europe has been rising — and a significant number have been in Ukrainians, according to a flurry of scientific papers. Read more in our special report: The Future of Antibiotics.

Science commentator Anjana Ahuja calls on governments to declutter space. Cheaper satellites have contributed to a growing problem of space junk as they come to the end of their operational lives.

Some good news

‘Roos playing air guitar, angry birds and foxes with cigars: It’s the Comedy Wildlife Photo Awards 2023.

Something for the weekend

Try your hand at the range of FT Weekend and daily cryptic crosswords.

Source: Economy - ft.com