EU extends downturn after the US jobs data

European equities sank further yesterday after US jobs data, although missing forecasts, seemed to strengthen the case for rapidly rising US interest rates, analysts said.

Wall Street meanwhile opened steady, buoyed by confirmation via the jobs market that the American economy is firing on all cylinders, they added. The US non-farm payroll for September came in at 134,000 new jobs, far fewer than analysts had expected, but August figures were revised up, making this “far from a terrible employment number”, said Craig Erlam, an analyst at Oanda. “This is actually another very good report that other countries will be extremely envious of,” he said.

The numbers, added Harm Bandholz at UniCredit, “allow the Federal Reserve to continue its policy of gradual normalization”. But as expectations of higher Fed rates increased, so did US Treasury bond yields, in turn weighing on stock markets because of expectations of higher borrowing costs.

With Treasuries the key gauge for Federal Reserve policymakers when deciding interest rate hikes, markets are growing more concerned that the cost of borrowing will rise more than previously expected and hit the economy. “Equities are under pressure as investors fear the Fed will need to tighten policy faster than expected to keep the US economy from overheating,” noted City Index analyst Fiona Cincotta.