News of the week summary - 23/11/2025

Mixed US jobs report deepens the FED’s policy dilemma

The latest US employment data delivered a complicated picture of the economy just weeks before the Federal Reserve meets to decide whether to cut interest rates again. Employers added 119,000 jobs in September, far more than economists had expected, suggesting that parts of the labour market remain resilient. Yet the unemployment rate rose to 4.4 percent, the highest in four years, and earlier months’ job gains were revised sharply lower. These revisions matter because they show that underlying momentum has been slowing for some time.

The unemployment rate and job creation figures come from different surveys, which can diverge in the short term. The household survey showed more people reporting unemployment, while the establishment survey showed modest hiring growth. Such splits are not unusual, but when they occur during a turning point in the economic cycle, they make the Fed’s job harder. Officials inclined to cut rates, known as doves, will point to rising unemployment as evidence that restrictive monetary policy is weighing too heavily on the economy. More hawkish policymakers, who worry about inflation, will focus on the stronger than expected hiring number and argue for caution.

Financial markets reacted as one would expect to a report lacking clear direction. Treasury yields dipped because investors viewed the rise in unemployment as increasing the chance of future rate cuts. Stock indices gave up early gains, as traders digested the message that the economy may be losing momentum while still not generating the kind of weakness that would guarantee easier policy.

The Fed has already cut interest rates twice this year by a quarter percentage point each time. The key question is whether the current mix of higher unemployment and moderate job creation signals a labour market that needs support or one that is easing in a manageable way as inflation subsides. With conflicting indicators, policymakers face a delicate balance. Cutting rates too quickly risks reigniting inflation, while waiting too long risks allowing the labour market to weaken further. 

India’s top refiner retreats from Russian oil 

Reliance Industries, India’s largest private refiner, has halted purchases of Russian crude for one of its key export focused facilities in order to comply with tighter US and EU sanctions. This marks a sharp shift for a company that became the biggest buyer of discounted Russian oil after the invasion of Ukraine. Cheap Russian barrels had offered India a significant economic advantage. Refiners like Reliance could import crude at a discount, process it and then sell fuel products abroad at global market prices. This price gap allowed the company to earn an estimated six billion dollars in extra profit over the past three years.

The tightening sanctions regime has made this strategy riskier. The United States escalated restrictions in October by targeting major Russian producers, a move that took effect this week. At the same time the European Union plans to ban imports of petroleum products made from Russian crude even if they are processed in a third country. Because Reliance exports a large share of its output to Europe and the United States, continuing to use Russian oil could leave it shut out of major markets once these rules come into force in 2026. For a refiner whose business model relies on global sales, compliance has become essential.

Markets have increasingly reflected Washington’s pressure. President Donald Trump criticised New Delhi for helping Moscow by buying its oil and even raised tariffs on Indian goods during a period of rising trade tension. The threat of further penalties has pushed Indian companies closer to alignment with US policy. Reliance has said that Russian deliveries purchased before the latest sanctions will be processed only at its domestic focused refinery and will not be exported, showing how carefully it must manage the transition.

India’s rapid growth has made it heavily dependent on imported fuel. Cutting back on discounted Russian crude may increase energy costs, so the government has tried to balance political considerations with economic needs. In recent days, India signalled goodwill toward Washington by agreeing to increase purchases of US liquefied petroleum gas. Moves like this may help ease trade frictions as negotiations over a broader trade agreement continue.

Crypto markets tumble over interest rate uncertainty and bubble concerns

The cryptocurrency market has erased more than one trillion dollars in value over the past six weeks, a dramatic reversal driven by rising interest rate uncertainty, concern over stretched technology valuations and the unwinding of highly leveraged trading positions. After reaching a peak in early October, the combined value of roughly 18 000 digital assets has dropped about 25%, pushing the sector back to levels seen earlier in the year.

Bitcoin, which often serves as a barometer for broader crypto sentiment, has fallen around 30% to roughly 88 000$. This leaves it essentially flat for the year despite earlier gains fuelled by political enthusiasm for the sector, including President Donald Trump’s promise to establish the United States as a global leader in bitcoin and the appointment of a pro-crypto regulator at the Securities and Exchange Commission. That optimism has evaporated as traders reassess the risks of owning speculative assets.

A key factor in the sell-off is the shifting outlook for US interest rates. When interest rates fall, assets like cryptocurrencies become more appealing because investors earn less from holding safer instruments like short-term government bonds. This dynamic helps explain why digital assets had rallied earlier in the year when expectations of rate cuts were strong. More recently, however, doubts about a further reduction in December have weighed on sentiment and made speculative bets less attractive. Equities have felt similar pressure, with the S&P 500 down several percentage points from its late-October high and technology stocks again under strain due to concerns about lofty valuations in the artificial intelligence sector.

Leverage has amplified the downturn. In crypto markets, traders frequently borrow money to increase the size of their bets, which can boost gains but magnifies losses. When prices drop sharply, these leveraged positions are forcibly closed by exchanges, causing additional selling. This mechanism was on full display on October 10, when a threat by President Trump to impose large tariffs on China triggered the liquidation of 20 billion dollars of leveraged positions in a single day, the largest such event on record. The after-effects of this washout have continued to ripple through the market, leading to what some analysts view as a prolonged unwind rather than a fundamental collapse in demand for digital assets.

The fallout has been widespread. Several major cryptocurrencies outside bitcoin have fallen more than 40 per cent this year, and investor withdrawals from digital-asset investment products reached their highest level since February. Some analysts also suggest that the sharp October crypto liquidation contributed to volatility in US equities by forcing investors to reduce risk across their portfolios.

Japan’s bond market shifts amid new stimulus package announcement

Japan’s government bond market is undergoing its most significant shift in decades. Long term Japanese government bonds, once synonymous with extremely low returns, have seen the yields on twenty and thirty year bonds have risen to levels last seen a generation ago, reflecting a major sell off that has pushed prices down and returns up. For foreign investors, on a hedged basis (meaning minus the cost of protection from currency exchange rate risk), long dated JGBs now offer some of the strongest risk adjusted returns in the developed world.

This influx of foreign buyers contrasts sharply with a decline in demand from traditional domestic holders. Japanese life insurers, once consistent purchasers of long term bonds, no longer need to accumulate them after completing regulatory adjustments that required closer matching of assets to future liabilities. Demographic changes have reduced these liabilities as the large baby boomer generation ages, lowering insurers’ need for very long term assets. A new tax advantaged savings program has also pushed households to shift money away from life insurance products, reducing insurers’ available funds for bond purchases.

At the same time, the Bank of Japan has begun pulling back from the market. The central bank is gradually reducing bond purchases as it moves away from its long period of extreme monetary stimulus. When the BOJ buys fewer bonds, the remaining supply must be absorbed by markets, which puts downward pressure on prices and drives yields higher. Domestic banks have added to selling pressure, responding to political uncertainty and concerns about fiscal expansion following recent elections as well as trade tensions linked to the United States.

Foreign investors have stepped into the gap created by these shifts, buying long dated JGBs at record rates. Their presence is transforming the market. Greater international participation increases liquidity and produces more accurate market pricing, but it also raises Japan’s exposure to global sentiment. Foreign investors are more likely to respond quickly to signs of fiscal indiscipline or economic stress, creating a new sensitivity in a market once dominated by domestic institutions with a strong home bias.

These changes have become even more consequential with the announcement of a 21.3 trillion yen (equals about 130 billion dollars) stimulus package by Prime Minister Sanae Takaichi. The package includes subsidies for energy bills, cash transfers for families and rice coupons. It is designed to ease the pressure on households from rising living costs while helping the government regain political support. However, the scale of the package has unsettled financial markets. Investors immediately questioned how much of the spending would require new debt issuance in an economy with one of the largest public debt loads in the world. Before the announcement, yields on ten year JGBs climbed to their highest level since the global financial crisis, reflecting concerns about growing fiscal risk.

Currency markets reacted as well. The yen fell to a ten month low against the dollar as traders anticipated heavy government borrowing. A weaker yen may help exporters by making Japanese goods cheaper abroad, but it further raises the cost of imported energy and food, aggravating cost of living pressures. The finance minister suggested that foreign exchange intervention might be used to prevent excessive yen weakness. Once the government provided details of the stimulus package, including the fact that 17.7 trillion yen would be funded through a supplementary budget, the yen recovered slightly and bond yields edged down. Investors seemed to judge the program as large but not dangerously out of control.

Japan’s changing bond market is now at a critical juncture. Foreign investors are playing a larger role just as the government embarks on major fiscal expansion. The BOJ is stepping back, domestic institutions are reducing demand and global conditions remain uncertain. This combination means Japan must carefully balance its efforts to support growth with the need to maintain investor confidence. If managed well, Japan could become an increasingly important destination for global fixed income investment. If mismanaged, rising borrowing costs and currency volatility could challenge both economic stability and long term fiscal sustainability.