Global markets are keeping a close eye on US unemployment figures, as lower jobless numbers make it more likely for the Federal Reserve to tighten monetary policy soon, according to Chief Investment Officer Haig Bathgate.
The US Labor Department said today companies hired an extra 169,000 workers last month, demonstrating the US is on a slow, but steady recovery path. Unemployment is the key statistic the Fed looks at when deciding on strategy – the improving picture could lead policy makers to reduce their bond purchases which pump $85 billion into the economy every month. And while Fed Chairman Ben Bernanke has indicated this will be done gradually and not in one fell swoop, the impact of this impending decision is being felt globally.
In particular the timing is unfortunate for Mark Carney, the newly installed governor of the Bank of England. He has indicated he wants UK rates to stay low, and has the power to introduce more quantitative easing. But the recent increases in gilt yields, which tend to move in tandem with rate expectations and reached their highest level since mid-2011 yesterday, show the market believes he may have to follow the US.
And while recent statistics show the UK economy is recovering, our main trading partner is still the European Union, which is struggling to overcome its own downturn. As a result, the UK's recovery is unlikely to be a smooth ride upwards.
Haig spoke on BBC Radio's Good Morning Scotland before the employment data was released in the US.
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