Stronger-than-expected US jobs data sent rate-hike expectations sharply higher on Friday, with the probability of a September move by the Federal Reserve climbing to nearly 60%, according to Morningstar, up from below 40% before the figures were published. European indices closed little changed, while Wall Street fell as investors absorbed the implications of a labour market that showed considerably more strength than forecast.
The FTSE 100 (Financial Times Stock Exchange 100 index, which tracks the 100 largest companies listed in London) ended Friday down just 0.43 of a point at 10,831.09, a negligible move that masked a more turbulent week. The FTSE 250 gained 88.58 points, or 0.4%, to close at 24,584.71, while the AIM All-Share edged up 0.10 of a point to 799.91. Over the week, the FTSE 100 rose 0.4%, the FTSE 250 fell 1.3%, and the AIM All-Share fell 1.4%.
US Jobs Data and the Rate-Hike Debate
The Bureau of Labor Statistics (BLS), which compiles US employment figures, reported that nonfarm payroll employment rose by 162,000 in August, well ahead of the 56,000 rise predicted by the FXStreet-cited consensus. July’s reading was revised upward to 21,000 from an initial estimate of a 23,000 fall, and June’s figure was revised up to 31,000 from 20,000. The BLS noted that employment in June and July combined was 55,000 higher than previously reported.
The jobless rate held at 4.1% in August, in line with expectations. Average weekly earnings came in at 3.1% higher year on year, a slight cooling from the 3.2% recorded in July but above the forecast of 3.0%.
The context matters here. At its most recent meeting, the Federal Reserve (the US central bank) voted 9–3 to hold interest rates at 3.5% to 3.75%, with three members dissenting in favour of a hike, according to Charles Schwab. Those three dissenters (Beth Hammack, Neel Kashkari, and Lorie Logan) had grown more vocal in arguing that rates needed to rise. Friday’s jobs data added weight to that camp.
ING said: ‘With Fed chair Kevin Warsh describing the US at full employment, this outcome has nudged expectations of a September rate hike higher, but the final decision hangs on next Friday’s inflation print.’ Matthew Ryan, head of strategy at Ebury, noted that futures were now pricing around a 60% chance of a move at the September meeting, but added that the upcoming CPI (Consumer Price Index) data ‘should carry far more decisive weight and could prove make-or-break for the September decision.’
Nancy Vanden Houten, of Oxford Economics, said the strong report was not enough to ’cause us to change our call for the Federal Reserve to remain on hold,’ but added that ‘the bar for raising rates is probably lower if the Fed doesn’t see progress on inflation.’ Barclays analyst Pooja Sriram expects headline US CPI inflation to remain at 3.4% year on year in August, with core CPI edging down to 2.4% from 2.5%. Barclays’ baseline remains a 25 basis points (hundredths of a percentage point) hike at the September FOMC (Federal Open Market Committee) meeting, though Ms Sriram called it ‘a close call’. Not all forecasters agree: J.P. Morgan Global Research now expects the first hike of 25 basis points to take place in December, with policy rates holding at 3.75–4.0% thereafter.
Volkswagen Restructuring Lifts Frankfurt
In European equity markets, Paris’s CAC 40 fell 0.1% and Frankfurt’s DAX 40 gained 0.2%. The standout mover was Volkswagen, whose shares rose 6.5% after its ‘future plan 2030’ secured unanimous supervisory board approval. Management and unions agreed to cut a further 50,000 jobs by the end of the decade, bringing planned total reductions to around 100,000. The restructuring targets a 9% operating margin by 2030, equivalent to around 31 billion euro of operating profit, alongside cutting the model portfolio by about 50% and manufacturing complexity by around 75%. Analysts at Citi called it ‘a brave plan and a realistic decision for all concerned.’
London Movers: Computacenter, Vodafone and Experian
On the FTSE 100, Computacenter rose 4.1% ahead of half-year results due on Tuesday. Peel Hunt suggested another profit upgrade could be possible, with UBS also reiterating a ‘buy’ rating. Vodafone gained 2.7% after Goldman Sachs double-upgraded the stock to ‘buy’ from ‘sell’. Experian fell 4.4% after Federal Housing Finance Agency director Bill Pulte posted on X, formerly known as Twitter, accusing the credit-checking firm and peers of overcharging US customers, saying ‘this will end soon.’
On the FTSE 250, Renishaw added 5.6% after Bank of America raised it to ‘buy’ from ‘underperform’, while Genel Energy slumped 13% after Norwegian firm DNO ASA said it does not intend to make a takeover offer for the company.
US financial markets are closed on Monday for Labor Day, leaving next Friday’s inflation print as the clearest near-term test of whether the September rate-hike odds hold at that 60% mark or shift again.
