Market overview – Richard Carter, Head of Fixed Interest Research
The August US payrolls report provided more evidence of a deteriorating jobs market, with a lower-than-expected increase in new roles added and a further downward revision to June’s data meaning that the reading is now in negative territory. The 13k jobs lost in June ends a long run of expansion, being the first such decline since December 2020.
While July and August showed positive readings, there has been a pronounced weakness throughout 2025 with only 598k jobs added, the fewest for the first eight months of the year since 2009 (excluding 2020, when hiring froze due to the Covid-19 pandemic). The situation has turned notably worse since US President Donald Trump’s” Liberation Day” tariffs were announced, with an average gain of only 27k a month since May.
In August, total nonfarm payroll employment saw an increase of just 22k, down markedly from a revised 79k in July and far below estimates. The unemployment rate rose slightly to 4.3%. The July release showed large downward revisions to previous months, with May and June’s employment numbers dropping by a combined 258,000 from initial estimates. As well as the subsequent downward revision to June’s total in the August release, there was a modest 6,000 upward revision to July’s figure.
Earlier last week, jobless benefit claims ticked higher and job openings fell more than expected which, together with the payrolls’ figures, cements the fact that the labour market is weakening significantly. Following the Federal Reserve’s (Fed’s) decision to hold rates in July, markets had already largely priced in a 0.25% cut in September, regardless of the August payrolls figure. After the figure a 0.25% cut is seen as pretty much nailed on with interest-rate derivatives pricing in a 10% chance of a 0.5% move lower.
Still, one major obstacle to rate cuts remains. Inflation continues to complicate the Fed's path, and this week’s CPI print will be critical, especially as several FOMC members remain cautious about easing policy under political pressure. With the full impact of Trump's tariffs still unfolding, a hotter than expected inflation reading could lead to a split decision later this month.
Weekly economic announcements:
The MSCI All Country World Index rose 0.5% last week (15.2% YTD).
United States:
US stocks added 0.4% (11.2% YTD) but finished off their highs after moving lower following Friday’s jobs data. Hopes of Fed cuts have been boosting the market but the weakness in the payrolls report has raised concerns about the health of the economy. It seems that investors would prefer Fed cuts to come about due more to insurance against possible weakness than as a result of actual weakness. Tech stocks outperformed last week, rising 1.2% (12.9% YTD).
United Kingdom:
Potential central bank rate cuts are also in the spotlight in the UK, with Bank of England governor Andrew Bailey warning before a parliamentary committee that there is considerably more doubt about further moves lower. Whereas the US is pricing somewhere in the region of 1.5% of cuts (six 0.25% cuts) by the end of 2026, there is significantly less priced-in for the UK and Europe.
UK large-cap stock benchmarks increased 0.2% last week (15.8% YTD), while mid-caps fell 0.1% (+7.3% YTD). The pound held steady against the US dollar at US$1.35. Talk of rising gilt yields dominated news headlines but the 10-year gilt yield actually fell on the week, declining 10-basis points to end at 4.64%. The decline was due in part to the weak US jobs numbers.
Europe ex UK:
Eurozone inflation edged higher in August, coming in at 2.1%. The core reading, excluding food, energy, alcohol and tobacco, was unchanged at 2.3%. Services price inflation, a key metric for European Central Bank (ECB) rate setters, fell to 3.1% in July from 3.2%.
The ECB are widely expected to maintain rates at current levels following this week’s monetary policy decision. There is a growing feeling that the ECB are now at the end, or at least near the end, of their cutting cycle.
The MSCI Europe ex UK fell 0.1% last week (+10.6% YTD). German stocks underperformed, declining 1.3% (+18.5% YTD), French equites dipped 0.4% (+7.0% YTD) and Italian bourses decreased 1.4% (26.3% YTD).
Quilter Cheviot Approver 9 September 2025
