Certainly, the surprisingly strong August job numbers announced on Friday moved the financial markets.
But, I would argue, the “news” in those reports were largely noise. And that noise had very little to say about the important narrative trends unfolding in the market and that are likely to drive asset prices over the next year or longer.
This isn’t just because there were numbers in the jobs report that seemed to have a high ratio of noise to reality. The significant upward revisions to the June and July totals should remind investors of how especially difficult it is to produce accrate seasonal adjustments to this report in some transitional months. So, for example, the category of local government education added 42,000 jobs in August–and whaR happens in August because the school year starts in September?–largely offsetting a decrease in the prior month. Local government education has shown little net change since January 2025. Employment in food services and drinking places increased by 59,000 in August, well above the average monthly gain of 12,000 over the prior 12 months. Seasonal volatility? Maybe. Maybe not. One number that did jump out at me was the continued decline in jobs in information tech. Employment iN that category declined by 23,000 in August, following losses that had averaged 8,000 per month over the prior 12 months. In August, job losses occurred in computing infrastructure providers, data processing, web hosting, and related services (-8,000), in publishing industries (-7,000), and in broadcasting and content providers (-5,000).Is this a reflection of the layoffs in the tech sector that are being ascribed to the effects of AI? Some of those job losses certinly. And I’d note the effect on incomes across the economy from replacing relatively high paying tech jobs with relatively lower paying foodservice and healthcare jobs.
Nonetheless, I do understand the market’s reaction to this jobs surprise. If the labor market is stronger than expected, then, yes, the Federal Reserve has less reason to hold off on raising interest rates. We might even, Friday’s reaction argued, be looking at an interest rate increase at the Fed’s September 16 meeting.
The reaction makes sensee, that is, if we’’re still following the time-honored narrative in whih the Federal Reserve’s decisions on monetary policy determine yields in the debt market.
There’s increasing evidence that investors need to revise if not replace this narrative.
Consider.
What is driving interest rates higher–not just in the United States but inth world?
Sure, interest rate decisions from the Federal Reserve, the Bank of Japan, the European Central Bank, and the People’s Bank matter, but you’d excude me for thinking that at thi moment central banks are following rather than leadingthe financial markets. Today’s rising yields reflect expectations that long-term inflation will persist, that the huge demand for cash by private-sector artificial intelligence projects will compete with governments for investors, that unrestrained government spending will dtive up defcits, and that there seems to be very little plitical will to deal with these deficits. That’s a standard list that I took from the Washington Post. To those items I’d add a huge demographic crisis due to an aging global population, and the costs of coping with global warming (you know things like agricultural collapse in some regions and massive numbers of climate refugees).
Those factors all make government bonds less appealing, causing investors to demand higher returns.In the United States, federal debt as a percentage of gross domestic product stands at 122 percent. That has more than doubled since 2000, driven by spending on wars, the 2008 financial crisis, the covid-19 pandemic and several rounds of major tax cuts. Uing the IMF’s broad general-government gross-debt measure, Japan at 237% of GDP is far the highest large developed economy (most debt is domestically held), in the EU Italy is at 137% and France is at 116%. Germany at 63% is low among G7 peers.
But those fundamental factors aren’t the whole story. As several new stories from the end of the week that were overshadowed by the jobs report indicate the global debt markets are going through a major revision in risk sentiment. Higher bond yields are in part a result of declining confidence in the global finsncial system. And much of that loss of confidence is centered around the United States.
For example:
Since March, the central bank of the Netherlands, De Nederlandsche Bank, has moved 90 tons of gold out of the Federal Reserve Bank in New York. It is the second European nation this year to announce it had decreased or eliminated U.S. gold holdings. Olaf Sleijpen, president of the central bank of the Netherlands, said, “We have improved the tradeability of our gold reserves,” citing “increasing geopolitical unrest” and the need to be prepared for crisis.
France’s central bank earlier this year said that, through a series of more than two dozen transactions between July 2025 and January 2026, it had sold more than 140 tons of gold reserves held in the United States, yielding about $15 billion in profit amid surging gold prices at the time. The move left no French central bank gold reserve holdings in New York.
At the recent G20 ministerial meeting in North Carolina, European central bankers told U.S. Treasury Secretary Scott Bessent that they were deeply unhappy that Bessent hadn’t given them advance notice that the U.S. would sell euros to support the Japanese yen. Selling euros puts downward pressuree on the price of that currency.
Norges Bank Investment Management (NBIM), which manages Norway’s Government Pension Fund Global, has recommended reducing government bonds from 70% to 50% of the fund’s fixed-income benchmark and shifting the difference into other investment-grade bond sectors. The Finance Ministry must first decide whether to adopt it. Reuters calculates that the fund’s roughly $215 billion Treasury portfolio could decline by nearly $80 billion. NBIM says its overall dollar exposure would remain essentially steady—about 52.9% to 52.5% of the bond benchmark—because less Treasury exposure would be offset by more dollar-denominated mortgage-backed and government-related bonds.
I think these stories about asset sales, gold transfers, and ccurrency management all point to a gradual but profound long-term movement in the financial markets that will keep pressure on the dollar and raise Treasury yields as the U.S. has to compete for investors’ cash.
No matter what the month to month changes in the U.S. labor market.
I’d use any reaction to short-term noise as an opportunity to add to long-term positions in gold, silver, and copper.
How? See my forthcoming post on building a metals ladder.
