Worryingly, US consumers’ long-term inflation expectations have jumped to the highest since 2008, according to the University of Michigan’s latest sentiment survey.

The data shows that Americans are concerned that potential tariffs from the incoming Trump administration will drive up costs in the shops.

Americans expect prices will climb at an annual rate of 3.3% over the next five to 10 years, up from the 3% expected last month.

This anxiety has pulled down the Michigan sentiment index to 73.2 in January, down from 74 in December.

US stocks have been hit by the news that America’s jobs market was much stronger than expected in December.

The Dow Jones Industrial Average, of 30 large US companies, has dropped by 313 points or 0.73% at the start of trading to 42,322 points.

The broader S&P 500 index is down 1%, while the tech-focused Nasdaq has lost 1.3%.

Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin, says:

US nonfarm payroll was surprisingly robust, to the point where such “hot” data is likely perceived to be “bad news” for markets. While the ongoing resilience in the job market is welcomed, markets have recently shifted to focus more on inflation concerns and rising bond yields. The exceptionally strong US jobs gain in December, together with the prospect of pro-growth policies and tariffs by the Trump administration, will exacerbate concerns on inflation. This casts doubt on whether the Federal Reserve can cut interest rates at all in 2025. The rise in bond yields also caused some nervousness in the equity market, even though a strong economy is good for corporate profits.

This is further bad news for the UK Chancellor, as UK bond yields further rose alongside global yields today. While the moves are affected by US data, the rise in borrowing costs will put further strain on UK’s fiscal position and hence attract intensifying scrutiny on the government.

The US labor market expanded strongly in the last jobs report of the Biden administration, according to new data released on Friday.

The number of new jobs added to the economy accelerated to 256,000 in December, up from 227,000 in November, soaring past expectations. The labor market last month was bolstered by new jobs in healthcare, retail and government.

As the final jobs report of his administration, it’s a blowout for Joe Biden, who struggled to rally support around his economic agenda despite the economy strengthening after the pandemic.

Other data points released in the last week pointed to strength in the labor market. The Jobs Openings and Labor Turnover Survey (Jolts) showed that job openings topped 8m in November, soaring past expectations.

Another report from outsourcing firm Challeger, Gray & Christmas reported a 33% decrease in layoffs in private firms in December, going from around 57,000 cuts in November to 38,000 layoffs in December.

The market reaction to today’s strong US jobs report is a sign that the peak in government bond yields has not been reached, yet, warns Seema Shah, chief global strategist at Principal Asset Management.

That is bad news for the UK, as Shah explains:

“The important payroll beat will be good news for the U.S. economy and the US dollar, unwelcome news for equities as they seek interest rate relief, and punishing news for global bond markets, particularly UK gilts.

U.S. labor market strength is clearly a continuing theme and suggests that the economy continues to thrive. The Fed can be very comfortable staying put in January and will need some meaningful downside inflation surprises or reversals in upcoming jobs reports to wake them from rate slumber in March.

For global bonds, the strength of the U.S. jobs report just adds to their challenges. The peak for yields has not yet been reached, suggesting additional stresses that several markets, especially the UK, can ill afford.”

The UK bond market crisis is bursting back into life too.

UK bond yields have jumped as investors calculate that the strong US jobs report reduces the chances of interest rates cuts in America, and quite possibly the UK too.

The yield on 30-year UK gilts has gained another 7 basis points (0.07 percentage points) today to 5.437%, towards the 26-year high seen on Thursday.

Ten-year gilt prices are also weakening, driving up yields on those bonds by 8 basis points to 4.88%, near to the highest since 2008.

Newsflash: the US economy added many more jobs than expected last month, a development that has hammered the pound.

Non-farm payrolls rose by 256,000 in December, the U.S. Bureau of Labor Statistics has reported today. That smashes forecasts of a 160,00 increase, and has pulled the US unemployment rate down to 4.1%, from 4.2%.

Employment trended up in health care, government, and social assistance, and retailers also added jobs in December, the BLS reports.

This indicates the US labor market is in a stronger position than expected – good news for Donald Trump as he prepares to be sworn in as US president later this month.

BUT it will make it harder for the US Federal Reserve to justify cuts to interest rates.

As a result, the dollar is rallying – and this has sent the pound plunging by a whole cent to $1.22, the lowest since November 2023.