Introduction: Market rout resumes as Asia-Pacific markets slide
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Global investors are bracing for fresh volatility after suffering losses last week, as anxiety over the health of the US economy sweeps markets.
Stocks have tumbled in Tokyo again today, where Japan’s Nikkei 225 share index has slumped by almost 10% in late trading – hitting its lowest level since late last year, and triggering circuit breakers designed to stop panic selling.
Asian markets getting hammered this morning. Going to be a busy day today. $KOSPI halted in circuit breaker, $NIKKEI down ~10%
— Intern Pierre (@internpierre) August 5, 2024
Other Asia-Pacific markets are also falling, with South Korea’s Kospi down over 8% in afternoon trading, and Australia’s S&P/ASX 200 down 3.5%. Further losses are expected in Europe and on Wall Street today.
Appetite for taking risks has waned, after the tech-focused Nasdaq index sunk into contraction territory on Friday – closing over 10% below its alltime high.
Disappointing US jobs data on Friday added to concerns that the US Federal Reserve may have blundered by not cutting interest rates last week, and might be too late to prevent a recession. The chance of a large reduction in borrowing costs next week has surged.
The implied market probability of a 50 basis point cut by the Federal Reserve in September suddenly surged from essentially de minimis to some 80% as traders increased their overall expectation of both the size and the speed of a Fed cutting cycle.
It is certainly possible that,…— Mohamed A. El-Erian (@elerianm) August 4, 2024
Last week’s selloff came amid a flurry of key events, including:
-
The Bank of Japan surprisingly raising interest rates, prompting the yen to surge.
-
A weak US ISM manufacturing report, which showed factory activity contracting last month
-
A jump in the number of Americans filing new applications for unemployment benefits, to an 11-month high, followed by….
-
…a drop in job creation, according to July’s non-farm payroll
-
Underwhelming financial results from major tech companies, which didn’t persuade Wall Street that the huge investments in artificial intelligence were paying off.
The news last weekend that Warren Buffett had cut his stake in Apple may weigh on tech stocks again this week.
Rising tensions in the Middle East hit stock markets yesterday too, as fears grew of a retaliatory Iranian attack on Israel. Saudi Arabia’s benchmark index fell by 2.4% on Sunday, and Egypt’s blue-chip index lost 2.9%.
There’s certainly plenty of fear in the system, as illustrated by Wall Street’s “fear gauge” – the Vix index of expected US stock market turbulence — which jumped last week.
As Stephen Innes, managing partner at SPI Asset Management, puts it:
It’s a bit like watching a slow-motion replay of a spill in a crowded market: you know there’s room for more chaos, but you’re just not sure how much more the aisles can take before everything’s on the floor.
How did the financial snowball start barreling downhill? It kicked off with the Yen bulking up—a move we hinted at positioning for just before the Bank of Japan (BOJ) decided to hike. This beefier Yen set off a domino effect, triggering a global unwinding of carry trades that nudged the VIX into action. Ah, the VIX, our merciless watchdog, always ready to sound the alarm.
From there, the market turmoil morphed into a full-on avalanche, propelled by not one but two vector bear assaults. And if you throw in the dismal high-tech earnings misses into the mix—well, that’s strike three. Each factor compounded the others, turning a manageable slide into a frenzied tumble down the financial slopes.
Today we will get a flurry of data from the services sector, which will show how the UK, eurozone and US economies are faring.
The agenda
-
7am BST: Russia’s service sector PMI for July
-
9am BST: Eurozone service sector PMI for July
-
9.30am BST: UK service sector PMI for July
-
3pm BST: US service sector PMI for July
Key events
Bitcoin tumbles too
Cryptocurrencies are also caught up in the selloff.
Bitcoin has tumbled 15% since Friday night, dropping from around $62,500 to $52,800 this morning.
Ether, used on the Ethereum network, has lost over 20%.
🚨 Crypto Market Alert: Bitcoin falls below $53K and Ether drops over 20% in a sharp market downturn. Global economic factors, including Japan’s interest rate hike, are fueling volatility.https://t.co/4GhbEYvfmK
— TodayinCrypto.com (@TodayinCryptoNL) August 5, 2024
Goldman Sachs lift risks of US recession to 25%
Goldman Sachs economists reckon there’s an increased risk of a US recession.
They have lifted their estimate for the probability of a US recession in the next year to 25% from 15%,
They told clients:
“We continue to see recession risk as limited.”
Goldman argues that the Federal Reserve has plenty of room to cut US interest rates if needed.
Bloomberg explains:
The economists added that they are skeptical the labor market is at risk of deteriorating rapidly in part because job openings indicate demand remains solid and there has been no obvious shock to spark a downturn.
Bets in the futures markets on Friday suggested growing unease about the US economy, says Bob Savage, head of markets strategy and insights at BNY.
Savage told clients in a research note:
Fed fund futures reflected pricing an over-70% chance of a 50-basis point cut at the central bank’s September meeting, compared to 22% the day before
Geopolitical worries will also be a theme this week, he adds:
The ongoing tensions between Israel and Iran have left many analysts discussing the risk of escalation and with that the threat to oil supply and ongoing global shipping.
The risk of Ukraine and Russia war continuing without a deal is also in play Increasingly, reports mix the role of Russia and Iran working together
Introduction: Market rout resumes as Asia-Pacific markets slide
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Global investors are bracing for fresh volatility after suffering losses last week, as anxiety over the health of the US economy sweeps markets.
Stocks have tumbled in Tokyo again today, where Japan’s Nikkei 225 share index has slumped by almost 10% in late trading – hitting its lowest level since late last year, and triggering circuit breakers designed to stop panic selling.
Asian markets getting hammered this morning. Going to be a busy day today. $KOSPI halted in circuit breaker, $NIKKEI down ~10%
— Intern Pierre (@internpierre) August 5, 2024
Other Asia-Pacific markets are also falling, with South Korea’s Kospi down over 8% in afternoon trading, and Australia’s S&P/ASX 200 down 3.5%. Further losses are expected in Europe and on Wall Street today.
Appetite for taking risks has waned, after the tech-focused Nasdaq index sunk into contraction territory on Friday – closing over 10% below its alltime high.
Disappointing US jobs data on Friday added to concerns that the US Federal Reserve may have blundered by not cutting interest rates last week, and might be too late to prevent a recession. The chance of a large reduction in borrowing costs next week has surged.
The implied market probability of a 50 basis point cut by the Federal Reserve in September suddenly surged from essentially de minimis to some 80% as traders increased their overall expectation of both the size and the speed of a Fed cutting cycle.
It is certainly possible that,…— Mohamed A. El-Erian (@elerianm) August 4, 2024
Last week’s selloff came amid a flurry of key events, including:
-
The Bank of Japan surprisingly raising interest rates, prompting the yen to surge.
-
A weak US ISM manufacturing report, which showed factory activity contracting last month
-
A jump in the number of Americans filing new applications for unemployment benefits, to an 11-month high, followed by….
-
…a drop in job creation, according to July’s non-farm payroll
-
Underwhelming financial results from major tech companies, which didn’t persuade Wall Street that the huge investments in artificial intelligence were paying off.
The news last weekend that Warren Buffett had cut his stake in Apple may weigh on tech stocks again this week.
Rising tensions in the Middle East hit stock markets yesterday too, as fears grew of a retaliatory Iranian attack on Israel. Saudi Arabia’s benchmark index fell by 2.4% on Sunday, and Egypt’s blue-chip index lost 2.9%.
There’s certainly plenty of fear in the system, as illustrated by Wall Street’s “fear gauge” – the Vix index of expected US stock market turbulence — which jumped last week.
As Stephen Innes, managing partner at SPI Asset Management, puts it:
It’s a bit like watching a slow-motion replay of a spill in a crowded market: you know there’s room for more chaos, but you’re just not sure how much more the aisles can take before everything’s on the floor.
How did the financial snowball start barreling downhill? It kicked off with the Yen bulking up—a move we hinted at positioning for just before the Bank of Japan (BOJ) decided to hike. This beefier Yen set off a domino effect, triggering a global unwinding of carry trades that nudged the VIX into action. Ah, the VIX, our merciless watchdog, always ready to sound the alarm.
From there, the market turmoil morphed into a full-on avalanche, propelled by not one but two vector bear assaults. And if you throw in the dismal high-tech earnings misses into the mix—well, that’s strike three. Each factor compounded the others, turning a manageable slide into a frenzied tumble down the financial slopes.
Today we will get a flurry of data from the services sector, which will show how the UK, eurozone and US economies are faring.
The agenda
-
7am BST: Russia’s service sector PMI for July
-
9am BST: Eurozone service sector PMI for July
-
9.30am BST: UK service sector PMI for July
-
3pm BST: US service sector PMI for July