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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Global selloff: Wall Street plunges, as FTSE 100 posts biggest fall in months – as it happened

Nikkei United States Japan Bitcoin Recession Goldman Sachs the Bank of Japan the Federal Reserve US Federal Reserve
A man looks worried as he views a computer monitor
The floor of the New York Stock Exchange. Photograph: Richard Drew/AP

Wall Street suffers worst fall in nearly two years

Hello again. After a day of heavy losses, the New York stock exchange has suffered its biggest one-day fall in almost two years.

The global rout that kicked off again in Asia early this morning, and ran through Europe, has sparked fresh losses on Wall Street tonight too.

The S&P 500 fell 3% Monday, the Dow Jones Industrial Average dropped more than 1,000 points, and the Nasdaq composite slid 3.4%.

That followed a 12.4% plunge for Japan’s Nikkei 225, its worst day since 1987, and the UK FTSE 100’s worst day since January.

Here’s the full story:

Danni Hewson, head of financial analysis at AJ Bell, sums up the day:

“Friday’s slump turned into a full-on meltdown following the sun around the globe but instead leaving a chill in its wake. There are plenty of theories about why today was the day which delivered this massive market sell off, but whichever one you subscribe to, you will undoubtedly be talking about the trillions wiped off market valuations for years to come.

For the FTSE 100 there was a tiny silver lining as it managed to clamber back above that psychologically important 8,000 milestone just before the close but only one company, Haleon, managed to end the day out of the sea of red.

The FTSE 250 closed almost 590 points down with five of its members finishing on the front foot as some hardy investors were likely redrawing their positions to take advantage of a spot of bargain buying.

But it was the mega caps that led the sell off, with reports of AI chip delays and Warren Buffett’s remarkably timely sale of a chunk of Berkshire Hathaway’s Apple shares adding to US recession fears and the pricing in of the anticipated flurry of rate cut activity many now think will follow.

It’s hard not to look at the headlines and succumb to panic but corrections happen and looking back since the start of the year the FTSE 350 is still in a better position than it was coming into 2024. Markets fall and they recover, the trick is to ride out the storm whilst picking up a couple of good deals along the way.”

Closing post

Time for a quick recap….

Global stock markets have tumbled again today, extending a selloff that began last week, as worries about the health of the US economy hit stocks.

Japan’s Nikkei index plunged 12%, its biggest one-day loss since 1987, as last Wednesday’s surprise rise in Japanese interest rates continues to rock the markets.

Analysts warned that the ‘yen carry trade’, in which investors borrowed cheaply in yen and bought higher-yielding assets, was unwinding, triggering margins calls and forced selling.

European stock markets fell sharply too, with London’s FTSE 100 having its worst day since mid-January.

Europe’s Stoxx 600 index has hit its lowest level in six months tonight.

There were heavy early losses on Wall Street, where the Nasdaq initially slumped by 6%. But stocks have staged a small recovery, after economic data showed the US service sector was still expanding.

That helped to pull Wall Street’s fear index back from an early surge.

Money markets are now predicting the US Federal Reserve will cut US interest rates by over a percentage point by the end of this year, with some speculation that the Fed could be forced into an emergency cut.

Philip Shaw of Investec says:

The past three sessions have witnessed major panic in stock markets, prompting investors and analysts to question whether the US economy is heading for a sharp recession or whether the Fed is about to sanction an emergency cut in rates, or both.

Here’s our full report on the market mayhem:

We’ll be back tomorrow with more coverage of the markets… GW

Europe's Stoxx 600 hits six-month low

The main European stocks index hit its lowest in over six months tonight, Reuters has spotted.

They explain:

Fears of a slowdown in the world’s largest economy knocked equities globally, with energy and utility stocks at the forefront of a broad-based market slide.

The STOXX 600 closed 2.2% lower, but off the day’s low. The continent-wide index logged its steepest three-day decline since June 2022, closing below the key 500-point mark for a second day.

Warning signs of a US recession may be bad news for Kamala Harris as the presidential election approaches.

Our economics editor Larry Elliott explains:

The Federal Reserve has a rule of thumb measure – known as the Sahm rule – for gauging whether the US economy is in recession. Named after the economist Claudia Sahm, this states that when the three-month moving average of the US unemployment rate is 0.5 percentage points or more above its low over the prior 12 months, the economy is in the early months of recession.

Last week’s jobless report from the Bureau of Labour Statistics showed the Sahm rule was on the brink of being triggered. As the consultancy Capital Economics pointed out, the rule will be met next month unless the unemployment rate falls back.

Historically, the Sahm rule has been a good predictor of looming US recessions, and it has been quoted widely in recent days by those arguing that the Federal Reserve has left it too long to cut interest rates. There has been speculation that, having fallen “behind the curve”, the Fed may not even wait until its next scheduled meeting next month, and may announce an emergency cut in the coming days.

Some economists warn against putting too much store by the Sahm rule. Dhaval Joshi, an analyst at BCA Research, said: “A decoupling between robust growth in the economy and steadily rising unemployment is unprecedented in our lifetimes. Through the past 60 years, whenever the US unemployment rate has increased by 0.5% in a year, taking it to the cusp of recession, GDP growth has also been on the cusp of recession. That is, until now.”

Australia’s share market has suffered its worst day since the onset of the pandemic as fears of a US recession prompted investors to exit their positions, erasing more than $100bn in value from local stocks.

A sea of red overwhelmed the local market on Monday, with the benchmark S&P/ASX200 index down by 3.7% to 7,649 at the close.

The losses over the last two trading days equate to $160bn, according to calculations by the Sydney-based Ophir Asset Management, with more than $105bn shed on Monday alone.

Back on Wall Street, the main indices are recovering from their early drop – but still on track for hefty losses, again.

Here’s the latest pricing:

  • Dow Jones industrial average: down 781 points or 1.97% at 38,955 points

  • S&P 500 index, down 112 points or 2.1% at 5,234 points

  • Nasdaq Composite: down 392 points or 2.34% at 16,383 points.

A salient point:

Fear index falls back from highs

Encouragingly, Wall Street’s ‘fear index’ has subsided from its earlier peak.

The CBOE VIX index is now back at 33.6 points, which still shows a sharp increase today of 43%, but is rather lower than the four-year high of 61.65 points hit earlier today.

FTSE 100 falls to lowest close since April

Newsflash: The UK stock market has posted its biggest one-day drop in months.

The FTSE 100 index has been hit hard today amid the global share selloff.

And while it has recovered from its earlier lows, the blue-chip stock inded has closed down 166.5 points, or 2% lower, at 8008 points.

That takes the FTSE 100 to its lowest closing level since mid-April.

Engineering firm Melrose led the fallers, down 6.3%, followed by water utility Severn Trent (-5.8%), and technology investor Scottish Mortgage Investment Trust (-5.5%).

Every stock on the FTSE 100 fell, apart from consumer goods maker Haleon which gained 0.4%.

European stock markets also finished deep in the red, with the pan-European Stoxx 600 index down 2.2% at the close.

Updated

Jim Smigiel, Chief Investment Officer at financial services firm SEI, has an eye-catching call – he says the current selloff is now “overdone”.

Smigiel argues that talk of an emergency Fed rate cut don’t make sense – especially given the pick-up in US service sector growth reported this morning:

“The weekend did little to dampen volatility as the global selloff accelerated this morning. Quite frankly, this sell-off is now overdone. Emergency Fed rate cuts being priced in makes little sense given the economic backdrop in the U.S. and would only serve to destroy policy maker credibility.

The strong ISM report this morning highlights the challenge of focusing in on single data releases and more or less confirms this market volatility is mostly a global carry trade unwind and a re-evaluation of the AI hype. We continue to see 2-3 25bps cuts from the Fed for the remainder of 2024 yet we also expect long term U.S. rates to drift HIGHER from this overshoot given what we see as firming short term inflationary pressures.”

Today’s market selloff has generated a couple of timely memes, starring the Beckhams!

Updated

With less than an hour’s trading to go, European stock markets are still a sorry sight.

The FTSE 100 share index is down 2.2%, or 1.8%, at 7,993, on track for its lowest close since April.

Germany’s DAX is off 2.4%, while France’s CAC is 2.1% lower.

Updated

Wall Street has recovered a little ground after its opening tumble.

The tech-focused Nasdaq composite index is now down 3.8% at 16,135 after an hour’s trading, having dropped over 6% at the open.

Intel (which announced plans to cut 15,000 jobs last week) is the top faller on the Nasdaq, down 7.5%, followed by Nvidia (-6.7%), and chip designer Arm (-6.7%).

A rival survey of the US services sector from the Institute of Supply Management also suggests it grew last month.

The ISM says:

In July, the Services PMI registered 51.4 percent, a 2.6-percentage point increase compared to the June reading of 48.8 percent.

A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent indicates it is generally contracting.

Like S&P Global’s survey a few minutes earlier, this could cool recession worries…. and also take some pressure off the Federal Reserve to consider sharp interest rate cuts…

Updated

US service sector activity "rises markedly again in July"

Finally, some good news from the US economy!

Activity in the US services sector rose “markedly again” last month, according to the latest health check from S&P Global.

Its US service sector PMI index (a measure of activity) has come in at 55.0 for July, down a little from June’s 55.3 but still comfortably in levels that show growth.

US service sector companies reported that an increase in new orders led to higher output last month, and also spurred the second successive rise in employment.

This suggests the US economy is still growing at a fairly solid pace, and could calm worries that it is sliding into recession…

Chris Williamson, chief business economist at S&P Global Market Intelligence, says:

The PMI surveys bring encouraging news of a welcome combination of solid economic growth and cooler selling price inflation in July.

Another strong expansion of business activity in the service sector, which over the past two months has enjoyed its best growth spell for over two years, contrasts with the deteriorating picture seen in the manufacturing sector, where output came close to stalling in July.

While manufacturers are reporting reduced demand for goods, this in part reflects a further switching of spending from consumers towards services such as travel and recreation. However, healthcare and financial services are also reporting buoyant growth, fueling a wide divergence between the manufacturing and service economies.

Thanks to the relatively larger size of the service sector, the July PMI surveys are indicative of the economy continuing to grow at the start of the third quarter at a rate comparable to GDP rising at a solid annualised 2.2% pace.

Updated

Pringles-maker Kellanova's shares pop on takeover talk

Snack maker Kellanova is defying the market rout – its shares are soaring, after reports that Mars is considering a takeover bid.

Kellanova, the firm behind tasty delights such as Cheez-It and Pringles, has caught the eye of Mars, Reuters reported yesterday, adding:

A deal would be one of the biggest ever in the packaged food sector, given Kellanova’s market value of about $27 billion including debt, and test the appetite of regulators to allow consolidation in the sector.

Kellanova’s shares have jumped around 17% in early trading – an impressure rally, given the wider market rout.

Wall Street joins in market rout with volatility at four-year high

The market rout has now reached Wall Street, which just opened for trading.

The technology-focused Nasdaq Composite tumbled 6.2%, or 1,038.07 points, my colleague Callum Jones reports from New York.

The benchmark S&P 500 dropped 4.2%, or 223.29 points.

The Dow Jones industrial average fell 2.8%, or 1,119.01 points.

Concerns about the strength of the US economy, and the threat of a recession, are at the heart of this sell-off. A dismal jobs report on Friday heightened fears of a slowdown across the world’s largest economy.

But the Nasdaq has also been hit by the sharp decline of Apple, the world’s largest company. Warren Buffett’s investment firm, Berkshire Hathaway, announced it halved its vast stake this weekend – knocking the tech giant’s $3trn market valuation, and rattling the wider Nasdaq.

Apple’s shares are down 6% in early trading.

As we noted earlier, the VIX - Wall Street’s ‘fear index’ - is trading at levels not seen since the onset of the Covid-19 pandemic four years ago.


New York traders will be reaching for their metaphorical tin hats, as the Wall Street opening bell is about to ring….

Investors have been piling into US government bonds, pushing up prices and lowering the yield (or interest rate) on the debt.

Wall Street futures are heading further south, with about 20 minutes until trading begins.

US doesn't look like it's in recession, says Fed's Goolsbee

Chicago Federal Reserve Bank president Austan Goolsbee has told CNBC tht the US economy doesn’t appear to be entering recession, even though Friday’s jobs data was worse than expected.

Goolsbee added that Fed policymakers need to be forward-looking in their decisions, explaining:

“You only want to be that restrictive if you think there’s fear of overheating. These data, to me, does not look like overheating.”

Updated

London’s stock market is looking increasingly bruised by the selloff – the FTSE 100 index of major stocks listed in the City is now down 3%, or 250 points, at 7,925 points.

Updated

Volatility 'fear index' hits four-year high

Now this is worrying.

Wall Street’s ‘fear index’, the VIX, has surged to its highest level since the Covid-19 pandemic hit the global economy over four years ago.

The volatility index is up around 160% today at 61.65, a gain of 38.26 points.

Reuters’ Jamie McGeever points out that the Vix is higher than in previous market wobbles, such as the 1997 Asian financial crisis, the failure of Long-Term Capital Management in 1998, or the dotcom crash….

Updated

One the dust settles, there could be buying opportunities in the markets, suggests John Moore, senior investment manager at RBC Brewin Dolphin.

“The sell-off of the past few days is, in part, some of the recent froth that has developed in the share prices of tech stocks being blown away. But, once it has settled, this could represent a buying opportunity for investors who believe in the long-term prospects of the sector.

“That process could take a little time and there will no doubt be some volatility ahead. Some of the current expectations around tech companies are likely to be too high – Nvidia’s chips issues today are very much a ‘business as usual’ type of challenge, but will be seen by some as another reason to be cautious. These companies should grow over time, but it won’t be linear and bumps on the road ahead are inevitable.

“The same is true of interest rates – they will come down, but central banks will be cautious. On both sides, events like those of the last week may be an uncomfortable experience for investors who have recently started participating in the market, but it is a natural part of the process before the next leg up can begin.

“It’s important to remember that you should be investing with a minimum time horizon of five years – and ideally longer. Taking professional advice can help you build a portfolio of assets that is designed to deliver long-term returns, while managing the volatility of periods like the past week.”

Dow and Nasdaq heading for 900-point tumbles

Wall Street futures have sunk deeper into the red!

The global market rout will soon hit the New York stock exchange, as worries about US growth, and the surging yen, hit shares worldwide.

The Dow Jones industrial average of 30 large US companies is on track to plunge 930 points when trading begins in just over an hour’s time, a fall of 2.3%, to around 38,948 points.

The tech-focused Nasdaq index is also heading for a 900+ point plunge. That would sent it slumping by around 5% – a significant slump – to around 17,616 points, data on Marketwatch shows.

The S&P 500 index is on track to fall around 4%.

The news last weekend that billionaire investor Warren Buffett has slashed its stake in iPhone maker Apple in half, amid a stock selloff, is also weighing on tech stocks.

Updated

Investors are betting heavily that the US central bank, the Federal Reserve, will slash interest rates aggressively in the coming months.

The markets now predict US rates will be cut by 1.25 percentage points, to a 4%-4.25% range, by the end of December, down from a current federal funds rate of 5.25% to 5.50%.

The Fed only has three meeting left in 2024 – September, November and December – so this implies two large half-point cuts, rather than a typical quarter-point reduction….

… unless the Fed is forced into an emergency rate cut, having left borrowing costs unchanged last week. That might smell of panic, though,. further destabilising markets….

Back in London, the FTSE 100 blue-chip share index is sinking deeper into the red.

The Footsie is on track for its worst day in a year, now down 222 points or 2.7% at 7952 points, its lowest since 22 April this year.

Gold and silver price fall

Gold is meant to be a safe-haven in troubled times, but precious metals prices are actually falling today too.

Spor gold is currently down 2% at $2,393 per ounce, while silver has fallen over 5% to $26.90 per ounce.

Gold has climbed over the last two years, as investors sought protection from inflation.

Today, though, investors may be cashing profits – or simply selling up to cover losses elswhere in the market.

Adrian Ash, Director of Research at BullionVault, says:

Gold isn’t immune to Black Monday ‘24, whip-sawing over $100 per ounce so far today and losing 5% in Yen terms as global stock markets slump. There’s some truth in the old chestnut that ‘All correlations go to 1 in a crash’.

Gold set a new record weekly close in London’s bullion market on Friday, but with traders needing to liquidate winning positions to cover margin calls on other assets, gold’s volatility signals the level of panic hitting equity markets.

“One heck of a deleveraging” is taking place in the markets today, says Brad Bechtel of investment bank Jefferies.

He says the surge in the value of the yen today – up 3.4% at one stage against the dollar to 141.675¥/$ – is “just mind-boggling”, explaining:

Most European markets are down over -2% with SPX futures -2.8% pre-market. One heck of a deleveraging taking place now and with the market so unhinged it’s hard to call a bottom just yet.

I thought we had reached extremes in USD/JPY at 146.00 but here we are at 142.14, and it’s hard to say where the bottom will show up. We are now 20 big figures off of the highs, from 162 to 142 in 4 weeks. Astounding move for a major currency like the JPY, just mind-boggling.

Small US company stocks are also heading for a bath today.

The Russell 2000 – the small-cap U.S. stock market index – is down 4.5% on the futures market.

Saxo: The perfect storm has hit markets. Here's why:

Saxo’s chief investment strategist, Peter Garnry, identifies five factors behind the stock market selloff:

  1. Recession fear as the “Sahm Rule” is triggered. The “Sahm Rule” is triggered when the 3-month average US unemployment rate is up more than 0.5% from its low over the previous 12 months. This indicator has correctly identified every recession since WWII, so its triggering on Friday planted the seeds of recession fear that led to declines in equities.

  2. AI profit taking after massive bull market. The AI and semiconductor theme had been one of the strongest themes over the past year. When there is a turnaround in sentiment the pockets with the most momentum are always hit the most.

  3. Japan’s surprise rate hike upsetting funding markets. The Japanese central bank has kept its policy rate much lower than any other central bank throughout this entire cycle causing the Japanese yen (JPY) to consistently decline. As a result JPY has been a key funding current for leverage in financial markets. The central bank’s surprise decision to hike the policy rate last week while making hawkish comments have caused turmoil in JPY and funding markets.

  4. 1-day options and the “divergence trade”. The US options market has become enormous and especially the 1-day options market has become a dominant force. In addition, Wall Street has been playing an options game called “divergence trade” which involved selling VIX futures and buying call options on technology stocks. When the VIX Index explodes higher this trade has to be unwound quickly. It adds to the volatility and increases market moves.

  5. Historical equity market concentration. We have written a lot about this topic. In late June the US equity market reached its highest market concentration since the 1930s meaning that the equity market weighting is dominated by a small group of stocks. This increases the risk in the equity market because the diversification is lower and thus more fragile to a change in sentiment as we have seen today.

Anxiety over growth prospects is hitting the price of copper – a bellwether for the global economy.

Benchmark copper traded in London has dropped by 1.9% today to at $8,887 a metric ton, the lowest since March 28, Reuters data shows.

'No sign of turbulence easing'

The dominant theme in the markets is the unwinding of various carry trades in currencies such as the yen, says Fawad Razaqzada, market analyst at City Index and FOREX.com.

As flagged earlier, “carry trade” is a strategy where traders borrow money at low-interest rates and invest it in higher-yielding assets. It worked well for Japan’s yen, untill the BoJ raised interest rates last week.

Razaqzada says:

It’s been a rough ride for global risk assets lately, and the turbulence shows no sign of easing at the start of this week. 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.

It appears as though Friday’s soft jobs report was a game-changer for US rates markets. Short-term US yields took a nosedive as the market consensus shifted dramatically, now expecting the Fed to slash rates significantly this year. We’re talking about a massive shift: the market is now pricing in around 120 basis points of Fed rate cuts before year-end, all driven by recession fears. No more hoping for a smooth, orderly adjustment in Fed policy. In fact, investors are now bracing for a 50-basis point cut in September, double the 25 basis points they were anticipating before.

Falling bond yields have flipped the script on low-yielding currencies. After a tough first half of the year, these currencies are now on the rise. With the Fed and other major central banks expected to lower interest rates, the US dollar and other high-beta currencies are being dumped in favour of the Japanese yen, Swiss franc, and Chinese renminbi. The yen, in particular, is getting an extra boost from last week’s hawkish BOJ rate decision, adding to its newfound strength.

A mid-morning European catchup

Time for a quick catch-up, after around three hours of trading in London.

  • Global stock markets are in retreat today as the selloff which began last week, sparked by fears of a US recession, accelerates.

  • Japan’s stock market has posted its biggest one-day drop since 1987, with the Nikkei plunging over 12% today.

  • The Yen has strenthened to a seven-month high, as investors continue to react to last weeks’s surprise rise in Japanese interest rates. That has hurt investors who were involved in the yen carry trade – borrowing the yen cheaply, to buy other higher-yielding assets.

  • European stock markets are all in the red. The UK’s FTSE 100 index is currenty down almost 2%, or -196 points, at 8014 points, having hit its lowest level since April this morning.
    .

  • Across the Channel, France’s CAC is down 2.3%, while Germany’s DAX has lost 2.7% and Italy’s FTSE MIB is down 2.8%. Banks and tech stocks are among the major fallers in Europe.

  • Wall Street is heading for another bath, with the Dow Jones industrial average set to fall around 1.6%.

US investors have been unsettled by weak economic data, such as last Friday’s drop in job creation.

Samer Hasn, senior market analyst at XS.com, says:

The collapse comes amid concerns about the health of the US economy after Friday’s shocking data, coupled with the uncertainty created by poor earnings season and heightened geopolitical tensions in the Middle East.

The extremely negative non-farm payroll figures sparked a wave of concern about the possibility of achieving a hard landing in light of rising interest rates.

Michael Langham, economist at abrdn, argues that the macroeconomic backdrop is not as serious as the tumbling markets suggest:

“US recession fears are back as a dominant theme, driven by a combination of a rapid loss of momentum in the labour market and reports of soft consumer demand in earnings reports. Market pricing is now indicating a belief that the Fed is behind the curve and will cut rapidly in upcoming meetings to avoid a hard landing. This has all spilled into Asian markets, with carry trades unwinding and risk-off sentiment prevalent.

However, we think the macro backdrop isn’t as terminal as markets are indicating. Strong labour supply growth in recent years has helped to cool the labour market and layoffs remain low in the US. In Asia, the upturn in tech exports and still buoyant domestic demand shouldn’t set alarm bells ringing yet for policymakers. We expect the Fed to begin easing in September, which should provide the runway for cutting cycles in parts of emerging Asia, and likely further stimulus in China could also have some positive spillovers, softening any slowdown in the region.”

Worryingly, Wall Street’s fear gauge, the VIX, has risen to a four-year high.

Volatility has driven the VIX up to levels not seen since June 2020.

Markets are classic sea of red today, flags Chris Beauchamp of IG:

Updated

Big Tech stocks are heading for further losses when Wall Street trading begins.

Nvidia is down 9% in pre-market trading, while Apple is down 8%, Microsoft is off 5%, Alphabet is 4.7% lower and Amazon is heading for a 2.8% drop.

The selloff is a ‘somewhat healthy correction’ rather than a crash, argues Christian Mueller-Glissmann, Goldman Sachs’ asset allocation research head.

He’s explained to Bloomberg TV that Goldman had turned more cautious a few weeks ago – partly because US economic data had become weaker. The wider markets, though, had treated that ‘bad news’ as ‘good news’, as it could spur interest rate cuts.

Soaring valuations in the tech space were another concern, as was uncertainty over the US general election.

Here’s a clip here:

Some happier news: UK services activity growth accelerated in July.

Purchasing managers surveyed by S&P Global show that demand for UK services rose at fastest pace since May 2023 last month.

Business confidence rebounded to a five-month high, with many businesses reporting higher sales volumes, the latest UK UK Services PMI report shows.

Joe Hayes, principal economist at S&P Global Market Intelligence, explains:

“With the general election period coming to an end at the start of July, survey data for last month showed the UK service sector enjoyed a modest rebound after a fairly subdued end to Q2.

The Business Activity Index crept up only slightly, but the New Business Index jumped by over three points to its highest level in 14 months as firms reported an influx of new clients and contracts.

The stock market turmoil shows the importance of a well-balanced portfolio, argues Ben Seager-Scott, chief investment officer at Forvis Mazars:

“Last week ended on a sour note for global equities following a bad run of results from a number of US mega cap technology stocks and poor economic readings in the form of Purchasing Manager Indices and the latest US labour market report.

With expectations set high earlier this year, it doesn’t take much bad news to create sharp movements to the downside. However, it is too easy to be drawn to the worst-case scenario, and on the whole, we remain neutral. What this does highlight though is the need to look beyond a small selection of equities and markets when managing your portfolio.”

Some stock market darling have been hit badly by the recent change in sentiment.

Chipmaker Nvidia, for example, are down 14% in the last month, but up 140% in the last year.

More weak economic data from the eurozone: investor morale in the euro area has fallen for the second month running.

The Sentix index for the euro zone fell to -13.9 points for August, from -7.3 in July, which is its weakest reading since January.

UBS Global Wealth Management’s base case remains that the US economy will avoid a recession with growth remaining close to the 2% trend rate.

They’ve also increased their expectations for US interest rate cuts, and expect a full percentage point reduction by the end of 2024.

Mark Haefele, their chief investment officer, says:

“US equities and bond yields fell in tandem on Friday due to weak US jobs data, raising concerns that the Fed may have delayed rate cuts too long, risking a recession.

We now anticipate 100 basis points of rate cuts this year, up from our previous forecast of 50 basis points.”

Back in the markets, the FTSE 250 index of smaller UK companies is also having a torrid time.

The FTSE 250 – seen as a better barometer of the British economy than the FTSE 100 – has shed 2.5% this morning.

It’s being dragged down, partly, by oil services company John Wood Group – its shares have tanked by 38% after Dubai-based suitor Sidara abandoned its takeover attempts.

Sidara blamed “rising geopolitical risks and financial market uncertainty at this time”….

Updated

Eurozone grows "at a snail’s pace in July"

Just in: the eurozone economy stalled in July as demand for goods and services deteriorated.

That’s according to the latest poll of purchasing managers, by data firm S&P Global.

It’s eurozone Composite PMI Output Index has fallen to a five-month low of 50.2, a level which shows activity barely rose last month (50 is the cut-off between expansion and contraction).

Growth in the services sector slowed, with companies reporting a weakening in new business.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, says:

“The eurozone’s economy is growing at a snail’s pace in July. Sector-wise, services is not picking up speed like it did earlier in the year, while the industrial slump has continued unabated. Because of this, the HCOB Composite Output PMI is just hovering above the expansion line.

So, while the second half of the year started off pretty weak, the PMIs and the official numbers for economic growth in the second quarter were surprisingly good. Given this situation, our 0.7% growth forecast for the year is still conservative. “You cannot miss the slowdown in the service sector. The PMI has dropped for three months straight to 51.9, companies have been more hesitant about hiring, and new business is barely ticking up.

The extraordinary effects from the European Football Championships in Germany, the Olympics in France, and Taylor Swift’s concert tour in Europe are winding down too. So, the service sector probably won’t give us much of a boost in the second half of the year.

After an hour’s trading, the UK stock market has sunk deeper into the red.

The FTSE 100 share index of the largest companies listed in London has now fallen below the 8,000 point mark for the first time since April.

It’s down 190 points, or 2.3%, at 7,984 points – on track for its worst day since last October.

Just two companies are bucking the selloff – Haleon (maker of toothpaste, vitamins and pain relief) and BAE Systems (maker of fighter jets, combat vehicles and warships). They’ve both up around 0.9%.

US futures suggest markets may fall further before finding a support level, cautions Derren Nathan, head of equity research at Hargreaves Lansdown:

He adds:

The coming months will be a testing time with economic and political uncertainty weighing on the market, as the US heads towards an increasingly unpredictable election.


Investors bet on more UK interest rate cuts

City investors are pricing in more cuts to UK interest rates this year.

Interest rate futures are now fully pricing two quarter-point BoE rate cuts by its December meeting.

At the end of last week, only one cut was fully priced in before the end of 2024 (although a second cut was already seen as likely).

Updated

Back in London, stocks with a particular exposure to the US are high on the FTSE 100 losers board, points out Richard Hunter of Interactive Investor.

Pershing Square, the hedge fund management company, is down 7.2% while Scottish Mortgage is down 5.5%.

Hunter says “global waves of unease” led to the torrid opening for the London stock market this morning, in which the Footsie fell 2%.

U.S. stock futures are indicating we’ll see further losses on Wall Street when trading begins in New York in under six hours.

CNBC has the details:

Dow Jones Industrial Average futures fell by some 600 points, or 1.5%. S&P 500 futures and Nasdaq-100 futures dipped 2.8% and 4.9%, respectively.

A possible economic downturn in the US is very likely to have worrying implications for the UK economy since UK growth correlates strongly with US growth.

Professor Costas Milas, of the Management School at the University of Liverpool, explains:

Goldman Sachs thinks there is a 25% risk of US recession but even very weak US growth will be equally problematic. In fact, brand new research of mine (co-authored) just published by The Journal of International Money and Finance argues that weaker US growth will have a negative spillover impact on UK economic growth and, consequently, make the UK less attractive for inbound foreign direct investment (FDI).

This should be a worry both for Rachel Reeves and Andrew Bailey: inbound FDI to the UK has been consistently dropping after Brexit which explains, partly our poor productivity performance (since higher FDI flows raise domestic productivity) and therefore undermines the chancellor’s plans to fix our public finances.

For the BoE, these are also worrying times: I fear the MPC will have to consider cutting interest rates as soon as November, if not earlier…

Follow last week’s cut in UK interest rates, to 5%, the money markets are indicating a 45% chance that rates are cut again in September.

An index of European technology stocks has dropped too, down 5.1% to its lowest level since January.

European bank shares slide

European bank stocks are being hit hard this morning, pushing the Stoxx Europe 600 Banks Index down by 4.6% in early trading, to its lowest since March.

Updated: In Italy, Unicredit has dropped by around 7% and Intesa Sanpaolo is down 6.5%.

Germany’s Deutsche Bank has dropped by 5.7%

Updated

The global stock markets rout has swept back to Europe.

Germany’s DAX dropped 1% at the start of trading, France’s CAC shed 2.1% and Spain’s IBEX fell 2.8%.

Nearly all the hundred companies on the FTSE 100 index are falling, with just five higher in early trading.

The few risers are ‘defensive’ stocks – such as consumer goods makers Haleon (+1.2%), Unilever (+0.9%) and Reckitt Benckiser (+0.7%).

Updated

London stock market tumbles

The London stock market has taken a plunge at the start of trading in the City.

The FTSE 100 index of blue-chip shares has dropped by 163 points, or 2%, to 8011 points, its lowest level since April.

Rolls-Royce, the UK engineering firm, are the top faller on the FTSE 100, down 7.3%, followed by Barclays (-5.6%).

August is often a weak month for the markets; liquidity is often lower, as investors in the northern hemisphere head off on holiday.

This means the recent worrying US economic data could have a greater impact.

Jim Reid, strategist at Deutsche Bank, explains:

Markets were on edge before Friday but a weak payrolls has really escalated a profound move across the globe.

However the reality is that although payrolls was disappointing it’s hard to know how disappointing given the distortions from Hurricane Beryl.

It’s like the market has added up 2+2 and made 9. It’s easily possible we’ll get the additional 3 and 2 to make up the total but we’re certainly not there yet. It’s hard to believe such market moves would have occurred in any other month.

The current market rout follows a period in which stocks have generally been heading higher, fuelled by low interest rates and ‘fear of missing out’ from the boom.

Bill Blain, strategist at Wind Shift Capital, says stocks have been “priced for perfection in a very imperfect market”:

For the last decade plus the FOMO driven “stocks have risen because they are rising” mindset has been the biggest momentum driver in markets – an upside cattle-prod combining fervid speculation with the ongoing distortions of mispriced money, artificially low interest rates, QE and expensive govt bonds, the financialisation of businesses, in a market seduced by a stream of fantabulous new, new things and greater than normal unbounded greed.

Old bond dogs like me found ourselves increasingly lonely we warned market participants that low rates were not normal, and central banks weren’t there to bail out markets… If this is a crash, it will reinstall a modicum of common sense to markets…

Oil hits seven-month lows

Worries about economic growth are hitting the oil price too.

Brent crude, the international benchmark, has dropped by 1.1% or nearly a dollar per barrel to $75.91/barrel, the lowest since January.

Analyst: there’s a lot of panic selling

Panic selling is hitting the financial markets today, reports Kyle Rodda, senior financial market analyst at capital.com.

In a note this morning, he explains:

The markets are in meltdown and it’s a sea of red across the world. There are a lot of moving parts, but this is the essence of things: a looming slowdown in the US economy has cast doubts about global economic growth. The move has triggered a sell-off in the US Dollar and a rally in the Yen, the latter of which was boosted by the BOJ’s decision to tighten policy last week and a subsequent short-squeeze.

The rapid move in the Yen is putting downward pressure on Japanese equities, but it’s also driving an unwind of a major carry trade—investors had leveraged up by borrowing in Yen to buy other assets, chiefly US tech stocks. We are basically seeing a mass deleveraging as investors sell assets to fund their losses.

The rapidity of the move has caught a lot of investors off guard; there’s a lot of panic selling now, which is what causes these non-linear reactions in asset prices to pretty straightforward fundamental dynamics.

Yen strengthens, hurting 'carry trade'

Japan’s yen is continuing to strengthen – which is hurting speculators and fuelling the selloff.

The yen has hit its highest level against the US dollar since the start of this year, at 142.3 yen to the dollar. Last week it traded around 154¥/$, before the Bank of Japan surprised markets by raising Japan’s interest rates last Wednesday.

That has destabilised the “carry trade” — where an investor borrows in a currency with low interest rates, such as the yen, and reinvests the proceeds in another currency, or other asset, with a higher rate of return.

That carry trade has been lucrative, as the BoJ had been reluctant to lift borrowing costs due to Japan’s weak economy.

But it’s now unwinding, fast….

Updated

Nikkei's worst day since 1987

Ouch ouch ouch.

Trading has just ended for the day in Tokyo, and Japan’s Nikkei 225 share index has suffered a fall of over 12%.

Japan’s benchmark Nikkei average closed down 12.40% at 31,458.42, a drop of 4,451 points, while the broader Topix shed 12.48% at 2,220.91.

According to Reuters, that’s a record daily points fall for the Nikkei, and the biggest percentage loss since the Black Monday crash of 1987.

Updated

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%.

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.

Key event

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.

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.

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

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