FTSE 100 Today: Stocks Rise as Soft U.S. Jobs Data Cuts Fed Hike Bets
The FTSE 100 was trading higher on Monday, October 5, as weaker-than-expected U.S. employment data reduced expectations for another Federal Reserve interest-rate increase this month.
London's blue-chip index was up around 0.1% in early trading, after rising 0.32% to 10,461.95 on Friday. The move followed a broader recovery in global equities after the latest U.S. jobs report showed hiring was considerably weaker than economists had expected.
The immediate market reaction is being driven by a familiar relationship: weaker U.S. economic data can reduce the need for the Fed to raise rates, potentially supporting stocks by lowering the expected cost of money.
However, the picture is not entirely straightforward. U.S. Treasury yields remain elevated, oil prices are still above $100 a barrel and European markets are dealing with renewed concerns over France's fiscal position.
Why Is the FTSE 100 Rising Today?
The main catalyst is the latest U.S. nonfarm payrolls report.
U.S. employers added only 29,000 jobs in September, far below the roughly 90,000 increase economists had expected. Payroll figures for July and August were also revised down by a combined 60,000. The unemployment rate rose to 4.2% from 4.1%.
The data changed expectations for Federal Reserve policy.
Before the report, financial markets had been pricing a meaningful possibility of another rate increase at the Fed's October meeting. After the weak jobs figures, the implied probability of an October hike fell to below 25%, with other market measures putting it around 20%.
That shift helped Wall Street finish higher on Friday. The S&P 500 rose 0.73%, the Nasdaq gained 1.19% and the Dow Jones Industrial Average added 0.49%.
European markets are taking some of that positive momentum into Monday trading.
What the Fed Has to Do With UK Stocks
For beginners, the connection between U.S. interest rates and the FTSE 100 may not be obvious.
The Federal Reserve sets monetary policy in the world's largest economy. When U.S. interest rates rise, global borrowing costs and bond yields can also come under upward pressure. Higher yields can make riskier assets less attractive and increase the discount rate investors use to value companies.
Conversely, expectations of fewer rate hikes can support equities.
The effect is not identical across all FTSE 100 companies. The index has a large weighting toward multinational businesses, including financial companies, miners, energy groups, consumer companies and pharmaceutical firms. Their earnings are influenced by global economic conditions, currencies and commodity prices as much as by UK monetary policy.
That is why a change in Fed expectations can move the FTSE 100 even though the index is based in London.
The Rally Comes After a Difficult Week
Today's rise also needs to be viewed against the FTSE 100's recent weakness.
The index fell about 2.2% over the previous week, its steepest weekly decline since April, as a sharp rise in government bond yields hurt risk appetite.
The UK bond market has been under particular pressure.
The 30-year gilt yield moved above 6% last week for the first time since 1998, while the 10-year gilt yield briefly climbed above 5.5%, its highest level since 2007.
That matters because rising gilt yields can make equities less attractive and increase financing costs for businesses.
The softer U.S. jobs report provided some relief to global bond and equity markets, but it has not eliminated the broader concern about elevated government borrowing costs.
U.S. Jobs Data Gives Markets a “Goldilocks” Signal
The jobs report has been interpreted by some investors as a potentially favourable outcome for stocks.
The economy is showing signs of cooling, which reduces pressure on the Fed to tighten monetary policy, but the data does not yet indicate a severe recession.
That is close to a “Goldilocks” scenario for risk assets: economic activity is soft enough to reduce inflation and rate pressure, but not necessarily weak enough to trigger a major earnings downturn.
Jefferies strategist Mohit Kumar described the report as a favourable setup for risk assets, according to Investing.com.
There is an important caveat, however. One monthly employment report does not determine the Fed's entire policy path.
The central bank will continue to examine inflation, wages, economic activity and financial conditions before deciding whether further tightening is required.
Why Investors Are Not Completely Relaxed
Despite the positive equity reaction, U.S. Treasury yields remain high.
The U.S. 10-year Treasury yield was around 5.26%, while the 30-year yield remained close to 5.62% in early Monday trading, according to market reports.
That creates a ceiling for some equity valuations.
The weaker jobs report reduced expectations for an October hike, but markets still see a possibility of a December rate increase. Reuters reported that the probability of an October hike had fallen to around 18%, while the December meeting retained a much higher implied probability.
So investors are not necessarily moving from a tightening cycle to an immediate easing cycle.
The more accurate interpretation is that the Fed may have more room to wait before raising rates again.
Oil Prices Add Another Complication
Oil is another factor for the FTSE 100 today.
Brent crude was trading around $101.59 a barrel, while West Texas Intermediate was around $89.93, according to Monday market data. Both benchmarks were lower on the day.
Lower oil prices can support broader equity sentiment by reducing some inflationary pressure.
For the FTSE 100, however, the relationship is complicated because the index contains major energy companies. Higher crude prices can support oil producers' revenues and profits, while lower prices can benefit oil-consuming businesses and reduce inflation pressure.
The Middle East remains a major source of uncertainty. Fighting involving Yemen's Saudi-backed government and Iran-backed Houthis is creating concerns over shipping routes and energy supplies, although increased Middle Eastern exports and planned releases from strategic reserves have helped ease some immediate supply concerns.
Sterling and the FTSE 100
Sterling was also weaker against the U.S. dollar, trading around $1.3215 in early Monday trading.
A weaker pound can have a distinctive effect on the FTSE 100 because many companies in the index generate a substantial portion of their revenue outside the UK.
When overseas earnings are converted back into pounds, a weaker sterling exchange rate can increase the reported value of those earnings.
That is one reason the FTSE 100 can sometimes perform differently from more domestically focused UK indices such as the FTSE 250.
However, currency movements have several effects on individual businesses, so investors should not treat a weaker pound as universally positive.
European Markets Face a Separate Problem
While the U.S. jobs report is supporting global risk appetite, European markets are also dealing with country-specific risks.
France's worsening fiscal outlook has pushed its borrowing costs higher and caused the euro to fall sharply. The euro recently touched a 17-month low near $1.1178, while the spread between French and German 10-year bond yields widened above 150 basis points.
That creates a more complicated backdrop for European equities.
The FTSE 100 has less direct exposure to French government debt than the CAC 40, but European-wide increases in sovereign borrowing costs can still influence investor sentiment, corporate financing conditions and currency markets.
Which FTSE 100 Stocks Could Benefit?
The market-wide rally does not mean every FTSE 100 stock will move higher.
Companies sensitive to global growth and lower interest-rate expectations may benefit from improved risk appetite. Technology-related businesses can also receive support when investors become more comfortable with higher-growth assets.
Banks and financial companies, meanwhile, face a more complicated environment because lower expected rates can affect lending margins, while stronger economic activity can support credit demand.
Mining and energy stocks will continue to be driven heavily by commodity prices.
For investors, the important point is that the index-level move is being driven primarily by macroeconomic expectations, rather than a sudden improvement in the earnings outlook of every FTSE 100 company.
What Investors Should Watch Next
The next phase of the market reaction will depend on whether the softer U.S. labour-market data is confirmed by other economic indicators.
Key factors to monitor include:
U.S. inflation data
Federal Reserve officials' comments
U.S. Treasury yields
December Fed rate expectations
UK gilt yields
Bank of England policy expectations
Brent crude prices
Sterling-dollar movements
France's fiscal situation
FTSE 100 corporate earnings
Investors should also watch whether the recent rise develops into a sustained recovery or remains a short-term rebound after last week's bond-market selloff.
Bottom Line
The FTSE 100 is rising today mainly because weak U.S. jobs data has reduced expectations for another Federal Reserve rate hike in October, improving global risk appetite. U.S. payroll growth of just 29,000 in September, combined with downward revisions to earlier months, prompted markets to sharply reduce the probability of near-term Fed tightening.
For UK investors, the relief comes after a difficult week for stocks and bonds. But the backdrop remains fragile. Elevated gilt and Treasury yields, oil prices above $100, Middle East tensions and concerns over France's public finances could continue to create volatility.
The key question now is whether the weak U.S. labour market becomes a reason for the Fed to pause or merely delays another rate increase. That distinction will likely determine whether the FTSE 100's current rebound can develop into a more durable recovery.
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This article is for informational and educational purposes only and should not be considered investment advice.