Economy

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The unemployment rate edged down to 4.1% from 4.2%, and the underemployment rate also saw a decrease to 7.5% from 7.7%. The labor force participation rate remained steady at 62.5%. In terms of wages, there was a negligible change, with year-over-year growth maintaining at 3.9%.BCA Research indicated that these figures point to a persistently healthy labor market, albeit one that is on a cooling trajectory. The data aligns with the previous month’s Job Openings and Labor Turnover Survey (JOLTS) which showed both layoffs and hiring rates to be moderate. The report’s findings have prompted a market response, with bond yields climbing and stock markets dipping, as expectations for the next Federal Reserve interest rate cut are now delayed until later in 2025.Despite the positive labor market data, BCA Research suggests that it is improbable for the labor market to strengthen significantly due to the current tight financial conditions exerting pressure on the real economy. The firm advises investors to adopt a cautious approach, recommending a slight preference for government bonds and cash over assets considered to be overvalued.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

The global bond rout could potentially hinder the actions of central banks, which have been reducing short-term interest rates. These rate cuts are intended to decrease borrowing costs for consumers and businesses. The uptick in yields is making borrowing more expensive, leading to what Wall Street refers to as “tightening financial conditions”. The average 30-year U.S. mortgage rate increased to 6.9% last week.According to Wall Street Journal’s analysis, analysts largely attribute the recent bond-market selloff to the U.S. yields on U.S. Treasurys, which increase when bond prices decrease, received their first significant boost in October following the release of robust monthly jobs data. This data dispelled concerns of an imminent recession. Further contributing to the surge, Donald Trump won the U.S. presidential election, promising policies that many investors perceive as inflationary. Additionally, Federal Reserve officials altered their forecasts to fewer rate cuts in 2025.Yields on ultrasafe government debt are primarily determined by investor expectations of what short-term interest rates will average over the lifetime of a bond. Yields on U.S. Treasurys are higher than those on German bonds due to lower rates in Europe, where the economy is weaker.However, changes in yields typically exhibit correlation. When Treasury yields increase, investors looking for a better return may sell their German bonds to purchase U.S. Treasurys. This action can cause German bond yields to rise as well.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Rasmussen acknowledged the legitimacy of American security interests in the region and emphasized the importance of cooperation with Greenland in any ongoing talks with the incoming administration of President-elect Donald Trump.At a news conference in Jerusalem, Rasmussen addressed the issue, stating, “We agree that the Americans have certain concerns about the security situation in the Arctic, which we share and therefore in close cooperation with Greenland, we are ready to continue talks with the incoming U.S. president, in order to ensure legitimate American interests.”The renewed interest from the United States in Greenland has been evident in recent statements from President-elect Trump. Having first expressed a desire to acquire Greenland in 2019, Trump has escalated his interest, not ruling out the use of economic or military force to assert control over the region.The response from Danish and European officials to the prospect of American control over Greenland has been largely negative. They have firmly stated that Greenland is not for sale and that its territorial integrity is crucial.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

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The march higher in U.K. government bond yields since the Labour government presented its debut budget plan in October has sparked concern, as borrowing costs rose to breached numerous decade highs.
Economists at research group Capital Economics said gilts may be trapped in a “vicious circle,” in which “the rise in U.K. yields puts a strain on public finances, therefore calling for an even bigger tightening of fiscal policy, but in turn putting additional strain on the economy.”

The march higher in U.K. government bond yields since the launch of the Labour government’s debut budget plan in October sparked widespread concern last week, as borrowing costs rose to breach numerous decade highs.
The prospect of public spending cuts or further tax rises came into focus last week, as 30-year gilt yields hit their highest level since 1998. Despite initially falling after Labour’s election victory in July, 2-year gilt yields have also climbed back above 4.5%, while the 10-year yield reached levels not seen since 2008.

Waning investor confidence in the U.K. was particularly highlighted by a concurrent fall in sterling, which on Friday hit its lowest level against the U.S. dollar since November 2023.

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Borrowing costs are also rising in the euro area and the U.S., and economists point out that the U.K. is being weighed on by external factors including the return of Donald Trump to the White House and expectations for broadly higher interest rates than previously expected this year.
But the surge in U.K. yields is nonetheless a major headache for the U.K. government, which has pledged to reboot economic growth while ensuring debt declines as a share of the economy within five years. U.K. public sector net debt currently stands at nearly 100% of GDP.
“The rise in gilt yields has a self-reinforcing feedback loop through the U.K.’s debt sustainability, by increasing borrowing costs used for budgeting purposes,” ING Senior European Rates Strategist Michiel Tukker said in a Friday note.
Tukker cited analysis by the independent Office of Budget Responsibility which indicates that the recent rise in yields — if sustained — would wipe out the government’s estimated headroom of £9.9 billion ($12.1 billion) for meeting its self-declared fiscal rules. Those regulations commit Labour to covering day-to-day government spending with revenues, as well as a goal of moving toward a decline in the U.K.’s debt to GDP ratio on a longer timeframe.

The Institute for Fiscal Studies think tank said Friday there is a “knife edge,” chance of the U.K. achieving the former fiscal rule, but that Finance Minister Rachel Reeves could “get lucky.”
She otherwise faces an “unenviable set of options,” said IFS Associate Director Ben Zaranko, including bringing forward upcoming changes to how debt is calculated to free up more headroom, paring back current spending plans and announcing more tax rises, which could be conditional on changes within the coming years. The minister could also opt to do nothing and break her rule.
Economists Ruth Gregory and Hubert de Barochez at research group Capital Economics also said U.K. gilts may be trapped in a “vicious circle,” in which “the rise in U.K. yields puts a strain on public finances, therefore calling for an even bigger tightening of fiscal policy, but in turn putting additional strain on the economy.”

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Pound vs dollar.

Bank of America Global Research strategists on Friday said that it was unlikely Labour would breach its rules and would instead announce further fiscal consolidation — measures to reduce public debt, generally public spending cuts or tax hikes — in the spring or earlier.
That would potentially be achieved through spending cuts, they added, coming off the back of the £40 billion in tax hikes that Labour announced in October.
A Treasury spokesperson told CNBC: “This Government’s commitment to fiscal rules and sound public finances is non-negotiable.”
“The Chancellor has already shown that tough decisions on spending will be taken, with the spending review to root out waste ongoing. And over the coming weeks and months, the Chancellor will leave no stone unturned in her determination to deliver economic growth and fight for working people.”

UK in ‘slow growth trap’ — but not a mini-budget crisis

Former U.K. Finance Minister Vince Cable told CNBC on Friday that higher bond yields were being seen in many countries and were not an “emergency panic situation” — but that markets had realized Britain was stuck in a “slow growth trap.”
“We’ve been there for many years, since the Financial Crisis, then Brexit, then a problem with Covid[-19] and Ukraine war, and we’re stuck with relatively high inflation, very slow growth, and so the markets are marking the U.K. down, relatively speaking. But this is not a panic situation, it’s not a crisis of the old-style balance of payment sell-off situation,” Cable said.
Labour should have gone for a broader range of tax rises rather than focusing on a hike in National Insurance — a levy on wages — which has been slammed by the U.K. business community, Cable said. However, he added that the market has broader concerns over U.K. growth and the global economic picture, which is clouded by external factors, such as the weaker Chinese outlook.

Britain’s economy flatlined in the third quarter, revised figures show

Cable also downplayed comparisons with the U.K. mini-budget crisis in 2022, when then-Prime Minister Liz Truss’s announcement of sweeping tax cuts triggered massive volatility in the bond market.
“The Truss moment was a prime minister just taking a reckless leap into the dark with a big increase in the budget deficit on the assumption this will somehow trigger economic growth. Well, that clearly isn’t what’s happened this time. The argument is about whether they’ve done enough tightening and whether they’ve done it in the right way, but it’s a different kind of problem,” Cable told CNBC.
That sentiment was broadly reflected in wider analysis. Bank of America strategists called comparisons with the mini-budget “overblown,” noting that the bar for the Bank of England to intervene in the gilt market, as it did at the time, was high.
Capital Economics said last week’s higher gilt yields were an economic headwind but not a crisis, with smaller and slower moves than after the mini-budget. David Brooks, head of policy at consultancy Broadstone, said there did not appear to be any “systemic issues at play” in the liability-driven investment (LDI) funds, which were the biggest concern back in 2022. More

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