Global stock markets plunge on US recession fears

Major European indices trimmed their losses to finish the day down around 1.5-2.0 percent.

Tokyo’s Nikkei tanked more than 12 percent in its worst day since the Fukushima crisis in 2011. It also suffered its biggest ever points loss, shedding 4,451.28.

Weak US jobs  report

The market meltdown was triggered by a weak US jobs report on Friday which showed the unemployment rate reached its highest since October 2021.

The report came two days after the US Federal Reserved decided, as expected, to keep interest rates at a 23-year high while signalling that it could cut them in September.

“Investors are gripped by fears that the Federal Reserve has waited too long to pivot on its policy, especially in light of Friday’s disappointing US jobs data and a slew of other weak economic indicators pointing toward a looming recession,” said market analyst Fawad Razaqzada at City Index and FOREX.com.

Friday’s much-anticipated report showed the US economy added just 114,000 jobs last month, well down from June and far fewer than expected, with unemployment at 4.3 percent.

The news came a day after lacklustre factory data.

Investors fear the Fed’s high rates, which aimed to slash inflation, could be plunging the economy towards a hard landing and recession instead of the soft landing sought by the central bank.

Some analysts pointed to the “Sahm Rule”, which says an economy is in the early stages of recession if the three-month moving average of unemployment is 0.5 percentage points above its low over the previous 12 months. That was triggered by Friday’s data.

But Chicago Federal Reserve President Austan Goolsbee said on CNBC that US jobs numbers are “not looking yet like recession” but said if conditions deteriorate “we’re going to fix it.”

Speculation that the Fed could cut more aggressively than expected from September, or even be forced into an emergency reduction this month, sent the dollar sliding against the yen.

The Japanese currency was boosted also by a Bank of Japan interest-rate hike last week, analysts said.

The dollar went under 142 yen for the first time since January.

Bitcoin, oil retreat

Markets tumbled across the board Monday, with Brent North Sea crude reaching the lowest level in more than six months despite heightened Middle East tensions, while bitcoin slumped more than 10 percent to under $50,000.

“Aside from ongoing worries about a US recession, the continuation of the pressure on markets has been attributed to unwinding of the yen carry trade and geopolitical fears surrounding an expected Iranian military retaliation against Israel after Israel killed a high-ranking Iranian military official,” said Briefing.com analyst Patrick O’Hare.

Many investors have borrowed at low interest rates in a weak yen to invest in higher yielding assets in other currencies, but the abrupt surge in the yen is forcing many to unwind the trades.

O’Hare also noted big falls in tech and semiconductor shares.

That helped fuel sharp drops in Asia markets and US tech shares were also pulling down Wall Street indices.

Shares in AI chip manufacturer Nvidia plunged 14.6 percent at the start of trading, but later clawed back more than half of those losses.

Shares in Facebook and Instagram parent company Meta, Microsoft and Google parent company Alphabet shares were also down.

Trump blames Harris for market shockwaves

According to BBC, Donald Trump, who has been struggling to find a clear line of attack against Vice-President Kamala Harris, has quickly latched onto the recent global stock market sell-off.

“ In a series of posts on his social media site, he blamed Harris and the Democrats for the downturn and said stockholders were rejecting her candidacy.

“Voters have a choice,” he wrote, “Trump prosperity or the Kamala crash & great depression of 2024.”

Public opinion polls have shown that voters trust the former president more on economic issues than they do Democrats. While the stock market indexes are still well above where they were when Trump left the White House, if the past few days of poor economic news represent a trend over the next three months, it could give Trump a potent electoral issue.

Democrats will be quick to note the economic turmoil that took place during the last year of Trump’s presidency, with its Covid-related unemployment surge and stock market collapse that dwarf the recent dip.

America voters tend to focus on the future, however. And if a stumbling economy becomes the top issue as they head to the polls in November, it will be difficult for Harris to shift their attention to areas – like abortion and the environment – where she is more popular than the former president” BBC stated.

Central bank will ‘fix it’ if economic conditions deteriorate -—Chicago Fed President

Meanwhile, according to BBC, Chicago Federal Reserve President Austan Goolsbee has downplayed US recession fears but says Federal Reserve officials need to monitor changes in the environment to avoid being too restrictive with interest rates.

“You only want to be that restrictive if you think there’s fear of overheating… these data, to me, do not look like overheating,” Goolsbee tells CNBC news.

He says the central bank’s job is not to react to one month of weaker labour data.

Goolsbee adds that if economic conditions deteriorate, the central bank will “fix it”.

“The Fed’s job is very straightforward: maximise employment, stabilise prices and maintain financial stability. That’s what we’re going to do.”

Unlikely to see emergency interest rate cut — Economist

Economist Steven Blitz says he doesn’t think there will be an emergency rate cut. But could there be a bigger rate cut in September?

“If there’s another sub 100,000 job number in August, and weak retail sales in July and August, then yes,” he says.

“If they (the Federal Reserve) want to take their time cutting (interest rates), that’s their business. The cost of that will be a much more rapid acceleration in cutting later on when we’re already in recession.”