Stock markets fell on Monday as fears over a U.S. recession prompted investors to abandon risky investments while waiting for interest rate cuts to initiate growth. Japan’s benchmark Nikkei 225 stock index slid 12.4 percent on Monday, its largest one-day decline since October 1987, while the broader Topix index lost 12.48 percent to 2,220.91.
European stocks opened 1.8 percent lower with France’s CAC 40 down 1.86 percent, Spain’s IBEX down 2.31 percent, and the UK’s FTSE 100 down 2.16 percent on fears of a global recession after the release of weak U.S. data.
Meanwhile, U.S. 10-year yields were down 0.037 points to 3.757 percent after hitting 3.723 percent, the lowest since mid-2023.
Rate cut speculations
The July U.S. payrolls report raised concerns, prompting markets to price in a 78 percent chance the Federal Reserve will not only cut rates in September but ease by a full 50 basis points.
Goldman Sachs analysts have increased their 12-month U.S. recession odds by 10 percentage points to 25 percent and now expect a 25-basis-point cut in September, November and December. Meanwhile, analysts at JPMorgan were even more bearish, pricing in a 50 percent probability of a U.S. recession.
Investors today await the ISM non-manufacturing survey for more insight into employment in the service sector. Analysts are expecting a rebound to 51.0 after June’s unexpected slide to 48.8.
U.S. dollar plunges
Amid rising U.S. recession fears, the significant decline in Treasury yields also overshadowed the U.S. dollar’s usual safe-haven appeal and dragged the greenback down against a basket of other major currencies. The dollar index fell 1.15 percent to 103.22 while the euro fell 2.12 percent to 156.46.
On the other hand, the Swiss franc surged 1.77 percent amid rising risks with the dollar falling 1.07 percent and hovering at six-month lows of 0.8485 francs.
Spot gold declined 0.68 percent to $2,424.76 while Brent dropped 1.76 percent to $75.46.
Hong Kong’s Hang Seng index lost 1.46 percent to 16,698.36 while the S&P/ASX 200 in Australia declined 3.70 percent to 7,649.60. The Shanghai Composite index lost 1.54 percent to 2,860.70.
The S&P 500’s 1.8 percent decline on Friday was its first back-to-back loss of at least 1 percent since April. Today, the index marked a 1.84 percent decline to 5,346.56. The Dow Jones Industrial Average dropped 1.51 percent, and the Nasdaq composite fell 2.43 percent. Friday’s losses dragged the Nasdaq composite 10 percent below its record high last month.
Tech shares take a hit
Amid the artificial intelligence surge, tech stocks this year witnessed exponential growth. However, the latest U.S. recession setback hit tech stock hard with South Korea’s Kospi declining 8.77 percent to 2,441.55. Samsung’s shares plummeted 10.3 percent to 71,400 while Taiwan’s Taiex index slid 8.35 percent to 19,830.88.
In addition, Taiwan Semiconductor Manufacturing Co., the world’s biggest chipmaker, shares fell 9.75 percent. Nvidia shares declined 1.78 percent, Apple shares rose 0.69 percent, and Microsoft shares were down 2.07 percent to $408.49.
Bitcoin fell 9.18 percent to $52,800.70 while ether slid 13.48 percent to $2,325.94.
Read: Nvidia shares surge 13 percent, biggest daily value gain in Wall Street history
U.S. recession fears rise
Fears over a U.S. recession sparked just a few days after Federal Reserve Chair Jerome Powell gave the clearest indication yet that inflation has slowed enough for cuts to rates to begin in September, pushing U.S. stock indexes to their best day in months.
Now, worries are rising regarding the Fed keeping its interest rates at a two-decade high for too long, raising risks of a U.S. recession. A rate cut would make it easier for U.S. households and companies to borrow money and boost the economy. However, it could take months to a year for the full effects of a rate cut to materialize.
“Specifically, the scenario of higher unemployment constraining spending and further restraining hiring and incomes and economic activity leading to a recession is the feared scenario here,” Tan Boon Heng of Mizuho Bank in Singapore said in a report.
For more news on markets, click here.
