Weekly Comment: Weak US employment data raises concerns

Market overview – Richard Carter, Head of Fixed Interest Research

The latest US jobs report showed a lower-than-expected reading of 73k in July, which, together with largescale downward revisions to previous months, suggests potentially worrying labour market weakness. The print was the lowest since the November 2024 jobs report, but it was really the downward revisions that served as the largest cause for concern.

The Labour Department lowered its payroll count for May and June by a combined 258k jobs, the largest two-month revision since April 2020 at the height of the Covid-19 pandemic. While the revisions are more dramatic, they represent an extension of a trend seen throughout 2025, as the Labor Department has lowered its initial reading every month so far. There has been fairly widespread concern that higher trade tariffs would weaken the US economy, but until now it had appeared that the US labour market had defied these and held up fairly well. This is now clearly in doubt.

US President Donald Trump responded to the news by firing the head of the Bureau of Labour Statistics, claiming that the numbers are being manipulated for political purposes. The decision raises further questions as to Trump’s overreach and attempt to influence independent organisations.

US stock markets were already lower on the week before the release of the jobs data, following reports that Trump had signed an executive order to raise tariffs on a number of nations from 7 August.

Derivatives markets are now pricing a high chance (around 85% at the time of writing) that the Federal Reserve (Fed) will cut interest rates at its next policy meeting, up from 38% just a few days ago. The Fed kept rates unchanged last week, with the Fed funds rate at 4.5%.

Weekly economic announcements:  

Global equities declined last week, with the MSCI All Country World Index falling 2.5% (+10.4% YTD).

United States:

US stocks experienced their worst week since the tariff-induced sell off in early April, declining 2.3% (+6.8% YTD). Tech-based indices tracked broadly inline to fall 2.2% (+7.4% YTD) and snap a long run in a narrow range — the market had gone 19 days without a 1% in either direction.

We are now over halfway through earnings season with 66% of US large caps having reported results through Friday morning. On the whole results have been strong with 82% beating consensus forecasts and a blended earnings growth rate of 10.3%.

United Kingdom:

UK equities fared relatively well last week, holding up better than peers to post a -0.5% return (+13.4% YTD). Currency depreciation provided some support with the pound falling to US$1.33 from US$1.34.

The 10-year gilt yield declined 10 basis points (0.1%) to end the week at 4.53% and move back lower for 2025 (-4 basis points YTD).

Europe ex UK:

The MSCI Europe ex UK underperformed last week, falling 3.3% (+7.3% YTD) as investors took a less favourable view of the EU-US trade deal. German stocks dipped 3.3% (+17.7% YTD), French benchmarks fell 3.7% (+5.2% YTD) and Italian bourses declined 1.9% (+21.2% YTD). The single currency weakened amid broad US dollar strength, with the euro ending the week at US$1.16.

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