Market Matters: Better Economy, But a harder bond market

• US employment strengthened, with 162,000 jobs added in August and unemployment holding at 4.1%. The improvement reduces immediate recession concerns but keeps a further Federal Reserve rate increase in play.
• Productivity and corporate earnings remain supportive. Annual productivity growth of 2.2% helped contain labour costs, while Broadcom’s strong results reinforced AI demand. Its subsequent share-price decline shows that valuations and expectations still matter.
• Energy disruption remains a key inflation risk. Brent finished the week around $96 a barrel and US retail diesel reached a record, increasing pressure on transport costs, business margins and household spending.
• Higher borrowing costs are testing governments and investments. Despite a partial bond-market recovery, elevated yields constrain UK fiscal flexibility and challenge assets whose valuations depend on cheaper financing.
• Markets remain resilient but increasingly selective. Japan led the week’s returns, while European and Chinese equities lagged. For advisers speaking to clients, the emphasis should remain focused on diversification, earnings quality and understanding portfolios’ reactivity to interest rates and currencies.