Investors around the world are bracing for further turmoil after stock markets plunged over the weekend on concerns that the mighty American economy is headed for recession.
Investors in Europe, Asia and New York were spooked by U.S. data on Thursday, including a weaker-than-expected jobs report, raising concerns that the world’s biggest economy may be in worse shape than previously thought. Ta.
That data, along with a series of disappointing earnings results from tech companies Amazon, Alphabet and Intel, led to a drop in stocks over the weekend, while Middle Eastern stocks also fell on Sunday amid continued tensions in the region.
Analysts fear further signs of weakness in major economies could lead to fresh volatility. The Nikkei stock average fell 2,216 points, or nearly 6%, on Friday as Japan’s central bank raised interest rates, while analysts warned of a recession after Germany’s economy slowed last month.
Last month, the price of Brent crude oil fell from nearly $88 a barrel to below $78 as the prospect of a recession in some of the world’s largest economies loomed large.
Economic data to be released in the US this week is expected to include Monday’s service sector data and Thursday’s number of people applying for unemployment benefits. Elsewhere, the UK is also expected to release service sector figures on Monday, among several large economies including China and Japan.
Chris Weston of US online brokerage firm Pepperstone said global markets were “at a really important crossroads”.
He added: “What really matters now is whether asset managers and traders feel sentiment has become too pessimistic, or whether this deleveraging and risk aversion is manifesting in even higher volatility and drawdowns. ” he added.
“To answer this pertinent question, the market must look at the results of the data to increase confidence in estimating recession risk and how it reflects on earnings expectations, consumer behavior, and corporate decision-making. I need to see if it does.”
Markets were spooked last week when the U.S. jobs report for July showed a slower-than-expected slowdown, with 114,000 jobs created instead of the expected 175,000.
The unemployment rate rose to a three-year high of 4.3%, while U.S. manufacturing activity also slumped, hitting an eight-month low in July as new orders slowed.
The numbers suggest that the world’s largest economy is vulnerable to recession and will need to cut interest rates sooner than expected to stimulate demand, rather than easing them in a more orderly manner. It aroused anxiety.
“We’re seeing the fallout from the curse of high expectations,” said James St. Aubyn, chief investment officer at Ocean Park Asset Management.
“There has been so much investment aimed at a soft-landing scenario that it is difficult to even suggest anything different.”
Art Hogan, chief market strategist at B. Riley Wealth, was more relaxed about the prospects for a rout. “This is not a Category 3 hurricane, but we are watching to see how the market reacts to signs that the economy is normalizing after the heatwave earlier this year,” he said.
He added: “Markets can overreact and investors cling to anything as an excuse to take profits.”
Skip past newsletter promotions
Sign up for Business Today
Get ready for work – all the business news and analysis you need every morning
Privacy Notice: Newsletters may include information about charities, online advertising, and content sponsored by external parties. Please see our Privacy Policy for more information. We use Google reCaptcha to protect our website and are subject to the Google Privacy Policy and Terms of Service.
After newsletter promotion
So far this year, investors have grown accustomed to cooling inflation and a gradual slowdown in employment, which appears to be paving the way for the Fed to begin cutting rates in stages.
This optimism led to a significant rise in stock prices. Despite recent declines, the S&P 500 index is up 12% this year, while the tech-heavy Nasdaq is up nearly 12%.
But on Friday, the Nasdaq fell 2.4%, down 10% from its all-time high and ended in correction territory, while Japanese stocks recorded their worst day since the coronavirus pandemic, with the Nikkei average dropping 5.8%. It fell.
In London, the FTSE 100 blue-chip index fell more than 120 points at one point, falling 1.5%.
Europe’s main stock indexes also fell on Friday, with European tech stocks falling to their lowest levels in six months. France’s CAC40 fell more than 1% to its lowest since November last year, while Germany’s DAX fell 2%.
In the United States, Uber, Airbnb, Hilton International and Coca-Cola are among the big companies reporting earnings this week. European bellwether stocks such as Italian insurer Generali and Deutsche Telekom are also scheduled to be announced this week.
Gold hit a new record on Friday as investors flocked to safe-haven assets while stocks fell. The US dollar fell, the pound rose 0.5% to $1.28 and the euro rose 1.2% to $1.092.
