European stock markets fell into the red on Wednesday as a surprisingly strong US job market caused bond yields to surge.
In London, the FTSE 100 (^FTSE) was 0.8% lower on the day, hitting its lowest since 8 September during the session, while the CAC (^FCHI) was 0.1% down in Paris, and the Frankfurt DAX (^GDAXI) managed to eke out a 0.1% gain.
The bourses were also held back by a sell-off in mining stocks as prices of most metals continued to fall. Industrial metal miners slipped 0.9%, while precious metal miners shed 1.6%, tracking prices of metals, including copper and gold.
Across the pond, things were more positive. The S&P 500 (^GSPC) rose 0.3% by the time of the European close, and the tech-heavy Nasdaq (^IXIC) was 0.8% higher. The Dow Jones (^DJI) was trading flat at the time of writing.
The positive mood came as a new survey by payroll operator ADP showed much fewer jobs were created at US companies last month than expected.
Private sector employment across the US rose by 89,000 jobs last month, far off the 153,000 increase which Wall Street economists expected.
The yield, or interest rate, on 30-year UK government bonds hit 5.115% according to Refinitiv data on Wednesday, as traders think inflation will be more sticky.
Meanwhile, the interest rate on German 10-year bunds have risen above 3%, for the first time since 2011.
"The sharp rise in long term rates relative to short term rates suggests investors think that US interest rates are likely to remain higher for longer due to the continued resilience of the US economy," Michael Hewson, chief market analyst at CMC Markets, said.
"If this trend of rising long-term rates continues, then stock markets could well be in for even more volatility in the days and weeks ahead."
Sandrine Perret, multi-asset portfolio manager at Unigestion, said: "It’s a very difficult market. It is all back to yields, that’s the main driver of markets. The pivot that most investors were expecting in September has not come yet – that’s the big driver of all market pricing at the moment."
Markets close and recap
Well that's all we have time for today. Thanks for following along. Be sure to join us again tomorrow bright and early.
Here's a quick recap of today's top stories:
UK 30-year borrowing costs hit highest since 1998
UK service sector at weakest level since January
Sunak cancels HS2 leg to Manchester
Pound falls to lowest level since mid-March
Tesco shares jump as profits surge
UK cost of diesel soars Weak US payroll report
Have a good evening all!
Why petrol and diesel prices do not fall with oil prices
Following on from our earlier post on petrol prices, my colleague Angela Barnes has taken a look at why petrol and diesel prices do not fall with oil prices...
Retailers in the UK have been accused of charging “unjustifiably” high fuel prices as the recent rally in oil prices has fed through to the pumps.
However, when oil prices ease, this does not mean the price will fall for consumers too with the RAC saying its analysis suggests that petrol was overpriced by about 7p a litre in September.
It comes as diesel prices increased by more than 8p a litre to 163p last month, while petrol prices rose by 4.5p a litre to 152p.
Christmas 2023 set to cost families over £730
Two thirds of Brits say Christmas is the most stressful time of the year, new national research has revealed.
The survey, commissioned by Park Christmas Savings, revealed 65% of people in the UK struggles with stress over the festive period, with finances the number one cause of tension.
In addition, the study revealed more than 7-in-10 Brits (71%) struggle to budget for Christmas, with over half (55%) of those surveyed admitting they leave their Christmas financial planning too late – October being when the majority first start to think about their festive spending.
This year families are set to spend, on average, £730 on Christmas – down on £900 in 2022. A quarter (23%) are more worried about paying for Christmas this year compared to last as the cost of living crisis continues to bite.
Weak US payroll report
ADP payroll data has revealed the smallest rise in private sector jobs since late 2020. Fewer jobs were created at US companies last month than expected.
Private sector employment across the US increased by 89,000 jobs in September, well below the 153,000 increase which Wall Street economists expected.
Interest rate forecasts
ING have released their latest forecasts for interest rates. Here's how they stand:
Bank of England (BoE): No more rate hikes and the first rate cuts from summer 2024
US Federal Reserve: No further rate hikes with cuts starting from Spring 2024
European Central Bank (ECB): No further rate hikes and the first rate cut in summer 2024
Bank of Japan (BoJ): Another tweak to the Yield Curve Control (YCC) policy but no change in the policy rate until the second quarter of 2024
Bond yield rise cools US housing market
Total mortgage demand in America fell by 6% compared with the previous week, new data has shown.
Applications weakened as US mortgage rates hit 7.5% for the first since November 2000, as the jump in US government bond yields drove up borrowing costs.
HS2 'seems bleak'
Richard Flenley, partner, at Charles Russell Speechlys said:
“Once hailed as the great project to increase connectivity between London, the North and Scotland, the future for HS2 seems bleak after confirmation that Government is pulling the plug on the Northern leg - another blow to the Levelling Up Agenda, and the basis for HS2’s creation in the first place.
The impact on homeowners and businesses whose properties have been threatened by potential acquisition cannot and must not be forgotten. If the Northern Leg does not proceed, will those adversely impacted to date be compensated?
To learn that part of the scheme will now be cancelled - after years of property owners feeling stuck in a state of limbo – will leave many feeling that this has all been for nothing.
Whatever decision is made about HS2's future and the Levelling Up Agenda, the adverse impact of HS2 has already been felt – and for some, they now won’t see any benefits”.
Sunak cancels HS2 leg to Manchester
Prime minister Rishi Sunak has confirmed at the Conservative Party conference that he is ending the “long-running saga” of the HS2rail line. He said:
I am cancelling the rest of the HS2 project, and in its place we will reinvest every single penny, £36bn, in hundreds of new transport projects in the North and the Midlands, across the country.
The line from Birmingham to London Euston will still be completed.
Investors keep watchful eye on Google stock
Investors are keeping across Google (GOOG) stock as the company’s legal battle with the US government continues over competition compliance – and ahead of its latest product announcements.
The chief executive of Microsoft (MSFT), Satya Nadella, testified on Monday in the antitrust case and claimed Google’s power in online search was so ubiquitous that even his company found it difficult to compete on the internet.
According to the New York Times, Nadella said in court that the internet is really the “Google web,” and added that Google could now use its advantage and scale to build tools to dominate the emerging artificial intelligence (AI) space.
Satya’s testimony confirmed the ongoing rivalry between the two tech giants that has gone on for more than two decades, with the pair battling over online search, mobile computing, web browsing and cloud computing, and now over AI.
Watch: How does inflation affect interest rates?