Market overview – Richard Carter, Head of Fixed Interest Research
After a six-week delay, a US employment report has finally been released. For those hoping September’s labour market figures would provide a steer on whether the Federal Reserve (Fed) will cut interest rates when it meets in December, chances are they would have been disappointed.
The report, which included the non-farm payrolls (NFPs) and unemployment rate for September, was something of a mixed bag. On the one hand, NFPs showed 119k jobs were added, more than double the 50k that was expected. On the other hand, downward revisions totalling 33k were made to the previous two months’ numbers — the revised tally for August was a loss of 4k jobs, only the second time since the pandemic there’s been a negative monthly payroll number. The US unemployment rate rose to 4.4% from 4.3% and now stands at its highest level in four years. Enough there for those at the Fed lobbying for a looser monetary policy (doves) and for those advocating a tighter one (hawks). For the rest of us, not much to go on.
All eyes then on the next report, will this shed some light for markets ahead of the December meeting? If only there was another report to pin hopes on. The October report has been cancelled, while November’s won’t be released until 16 December – too late for the next Fed meeting on 9-10 December.
The uncertainty over the future direction of US rates weighed on equity markets that were already in risk-off mode due to concerns over tech valuations and the eye-watering spending plans of the artificial intelligence (AI) hyperscalers (and whether future revenues can justify them). Not even forecast-busting numbers from AI poster child Nvidia could rouse Wall Street’s animal spirits. Fed chair Jerome Powell recently likened guiding the US economy in the current data vacuum to “driving in the fog”. Markets too having to navigate a pre-Christmas fog of their own, it seems.
Weekly economic announcements:
Last week, the MSCI All Country World Index (MSCI ACWI) lost -2.4% (+17.4% YTD).
United States:
US stocks ended the week lower with the main benchmark finishing down 1.9% (+13.5% YTD). Tech stocks fared worse with a weekly fall of -2.7%, a reflection of those valuation, spending and future profitability concerns. Unsurprising then that growth stocks (-1.9%) underperformed value (-0.8%) over the course of the week. Value closing the YTD gap with growth though — growth stocks are up 13.5% YTD; while value’s YTD gain is now up to 11.3%. With a few weeks to go before the year end, it’s still all to play for in the race between growth and value.
US Treasuries had a good week with the 10-year Treasury yield closing eight basis points lower at 4.07% (down 51 basis points YTD). The 2-year Treasury yield fell 10 basis points to 3.51% (down 73 basis points YTD). Is the bond market pricing in a potential December rate cut?
United Kingdom:
UK stock markets outperformed the global benchmark. With the Budget looming, the more globally focused large caps (-1.6%) fared better than medium-sized companies (-2%). YTD UK large caps are sitting on a 20.6% gain; while mid-caps are yet to break double figures at +7% YTD. Sterling finished the week a tad lower at US$1.31, compared to US$1.32 previously.
No shortage of noise around the Budget and which taxes will be raised during the week. The government borrowed £17.4bn in October, the third highest October since records began in 1993. Borrowing is £9bn higher thus far this financial year compared to the equivalent period in 2024.
Without a further tweak to the chancellor’s fiscal rules, the UK economy appears bound between tax rises, spending cuts or a combination of the two. To date, the government’s preferred lever has been tax rises, partly because its backbenchers have been unwilling to consider spending cuts. This has been reflected by PAYE (Pay As You Earn) Income Tax and NIC (National Insurance Contribution) receipts for April 2025 to October 2025 of £272.6bn, £28.1bn higher than the same period last year, and boosted by frozen thresholds.
Against this backdrop, gilt yields remain stubbornly high compared to US and European equivalents. The yield on the 10-year UK gilt largely treaded water during the week, edging three basis points lower to 4.54% (down two basis points YTD). For gilts’ yield premium to narrow, a rate cut in December would help, but with inflation remaining sticky the Bank of England may not act as aggressively as the government would like. That means the ball is back in Reeves’ court. Roll on Wednesday’s Budget.
Europe ex UK:
European equities underperformed with the MSCI Europe ex UK Index off 2.6% (+13.4% YTD). At the national level, Germany’s main index was down 3.3% (+16.0% YTD), with the latest composite purchasing managers’ index (PMI) showing Germany’s output expanding at a slower pace. Italian stocks were not far behind, losing 3.0% (+29.6% YTD); while the main market in France was off 2.3% (+11.7% YTD). Switzerland lived up to its safe-haven status ending the week largely flat (+12.4% YTD). Like sterling, the euro finished the week slightly lower against the US dollar at US$1.15, compared to 1.16 previously. Finally, the yield on 10-year German bunds ticked two basis points lower to 2.70% (up 34 basis points YTD).
Approver: Quilter Cheviot 26 November 2025
