Weekly Comment: US jobs data beats estimates; tax-and-spending bill passes

Market overview – Richard Carter, Head of Fixed Interest Research

The June US employment report showed 147k jobs added, comfortably higher than the 110k forecast. The prior two months saw a combined +16k revision to the number of jobs added while the unemployment rate fell to 4.1% from 4.2%. Concerns around a softening in the US labour market have risen this year due to the uncertainty surrounding trade tariffs and a negative impact from deportation.

Although the headline figures were strong a closer look revealed some signs of a slowdown with the 74k private-sector jobs added the lowest since October 2024. Professional and business services and manufacturing showed no increase or job losses as the bulk of the jobs added were concentrated in state and local government and healthcare.

Markets took the news well, with US benchmarks hitting new record highs before closing for the 4 July bank holiday. Donald Trump managed to beat his self-imposed Independence Day deadline for the Republicans’ tax-and-spending bill, after the House voted 218-214.  The “big, beautiful bill” cuts taxes, boosts border security and lowers social safety-net spending.

A key feature is the erasing of the 31 December 2025 expiration date from 2017 tax cuts in Donald Trump’s first term, indefinitely extending the higher standard deduction and child tax credits along with tax-rate cuts, business deductions and estate-tax reductions. The removal of section 899, a so called “revenge tax” aimed at non-US companies and investors is welcome, as if it remained it could have an adverse impact on returns from US equity ownership for non-US citizens. The bill will increase the budget deficit by US$3.4tn through 2034, according to the Congressional Budget office.  

Weekly economic announcements:

The MSCI All Country World Index (MSCI ACWI) last week added 1.2% (11.3% YTD).

United States:

US stocks (1.8%, 7.5% YTD) outperformed last week, boosted by reassuring jobs data and forthcoming fiscal stimulus.  Small caps rose (3.6%, 1.6% YTD) back into positive territory for the year, gaining more than their large-cap peers. Tech stocks added 1.6% (7.1% YTD). Growth shares underperformed value shares.

Activity in the US manufacturing sector contracted for the fourth consecutive month in June with the ISM (Institute for Supply Management) index coming in at 49, slightly below the 49.1 expected but above the prior reading of 48.5.

United Kingdom:

Financial markets reacted to political developments, as bond yields jumped higher and sterling depreciated as speculation rose that chancellor Rachel Reeves’ job was under threat. Reeves has been viewed as a steady hand as far as markets are concerned, regularly reiterating her commitment to self-imposed fiscal rules and a replacement could be less market friendly. A reassurance from PM Keir Starmer that Reeves will remain in the role calmed things, and bonds recovered somewhat with the 10-year gilt yield finishing the week up 5 basis points (0.05%) at 4.55%.

UK stocks added 0.3% (10.2% YTD) in a week of little change as mid-caps dropped 0.6% (6.6% YTD). The pound recovered to end the week close to where it began against the US dollar, at US$1.37.

Europe ex UK:

Continental European stocks ended the week lower, with the MSCI Europe ex UK (-0.4%, +9.5% YTD) falling. German benchmarks declined (-1%, +19.5% YTD) along with Italian bourses (-0.3%, +19.9% YTD) but French indices managed to eke out a minor gain (+0.1%, +7.3% YTD). The single currency edged higher against the US dollar, ending the week at US$1.18.

Approver: Quilter Cheviot Limited 9/7/2025

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