Strong jobs figures from the US yesterday left the FTSE 100 nursing a New Year hangover as fears grew that interest rate cuts may still be a while off.
Data showed the world’s strongest economy added 216,000 jobs in December, compared with 170,000 forecast by experts.
It prompted US Treasury Secretary Janet Yellen to declare that a ‘soft landing’ – in which inflation dips without the hard jolt of a recession – was under way.
But that added to the doubts that have been creeping into markets over the past few days over whether interest rates will fall as soon as traders had been hoping.
The FTSE 100 lost 0.4 per cent, or 33.46 points, to 7689.61.
Sign of the times: Data showed the US economy added 216,000 jobs in December, compared with 170,000 forecast by experts
That meant it finished the first trading week of the year 0.6 per cent lower than where it started. It was the London blue-chip index’s first drop in six weeks. Michael Hewson, chief market analyst at trading platform CMC Markets, said: ‘After a strong end to 2023 on expectations of early central bank rate cuts, markets have started 2024 undergoing the equivalent of a bit of a cold shower.’
UK bonds have also sold this week, with yields on ten-year gilts – which rise as prices fall – climbing by a quarter of a per cent, the biggest weekly increase since October.
It was a topsy-turvy session for US markets yesterday as traders also digested separate data from the services sector.
Those weak figures painted a contrasting picture from the main jobs report and helped to lift stocks and bonds.
However, the main Wall Street indices were still on course for the worst weekly performance since October.
Markets are unwinding bets on US rate cuts that had driven a rally over the last few weeks of 2023.
The chances of a cut by March were priced at 57 per cent last night, down from 65 per cent before the jobs data were released. Markets have also scaled back their bets on the pace of UK interest rate cuts over the course of 2024 after figures this week suggested a positive end to the year for the economy.
Traders are in the curious position of good news for the economy being bad news for markets as it will discourage central banks from cutting rates.
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin, said of the US jobs data: ‘Overall, the report is not a market-friendly one for now.’
In Europe, rate cut hopes received a blow after figures showed a rise in inflation to 2.9 per cent in December, up from 2.4 per cent in November. It was the first increase after seven months of decline.
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