A very nasty summer sell-off has been underway in stock markets around the world for the past 48 hours – and nervous investors had another reason to keep selling on Friday.
The US non-farm payrolls numbers – essentially a measure of how many jobs were created in the US economy last month and probably the most watched economic data in financial markets – came in much lower than expected for July.
Around 114,000 jobs were created in the US economy during the month. This figure was significantly lower than the 175,000 jobs that Wall Street expected to see created.
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It was the weakest figure since December last year and the second weakest since March 2020 – when the pandemic was taking off in the West.
The June figure was also revised downwards, going from the previously healthy 206,000 to 179,000. The numbers, when compared to the number of people entering the job market, mean that the US unemployment rate in July rose to 4.3%.
Once again, this figure was worse than the 4.1% predicted by Wall Street. And fears have intensified that the world’s largest economy could be headed for a recession.
These fears had already begun to increase when, on Wednesday night, the US Federal Reserve refused to cut interest rates from the 5.25%-5.5% range they had been in since July last year. – just a few numbers the next day pointed to a contraction in US manufacturing activity during July.
This had already sent US stocks into a tailspin, even before the jobs data. All major US stock indexes fell on Thursday – with the S&P 500, the most important index, falling 2.5% and the Dow Jones Industrial Average falling 1.9%. The tech-heavy Nasdaq fell 3.3% and the Russell 2000, the main U.S. small-company index, fell 3%.
These declines were added together on Friday afternoon – putting the S&P 500 and Nasdaq on track for a third consecutive weekly decline.
The index, which was also pressured by some mixed trading updates of large technology companies, is now at a level last seen in May and is officially in “correction” territory, meaning it has fallen more than 10% since its most recent peak in July.
There were even more violent falls in some individual stocks with Snap, owner of Snapchatit was down 30% at one point and chipmaking giant Intel was down 28%.
Shares in British chip designer Arm Holdings, which is also listed on the Nasdaq, fell another 6% and lost a quarter of their value. stock market value this week. Amazon, a tech heavyweight whose trading updates disappointed Wall Street overnight, fell 12%.
Photo: Reuters
Other asset classes are also falling. The price of oil – demand for which is expected to fall in the event of a US recession – is on track to complete its fourth consecutive weekly reversal, with a barrel of Brent Crude this afternoon reaching $77.70, a level last seen in the first week. of June.
On the positive side, the price of gold, a traditional safe haven for investors, is back near the all-time high of $2,483.60 reached on July 17.
And US Treasury bonds – or US government IOUs – also rose sharply. The yield, which falls when the price rises, on 2-year U.S. Treasury bonds, which closely track interest rates, fell below 4% for the first time since May of last year, while the yield on Treasury bonds US 10-year fell at one point to 3.79%. , a level last seen in December last year.
Market commentators and economists now expect the Fed to cut interest rates next month.
Seema Shah, chief global strategist at fund manager Principal Asset Management, said: “My God, did the Fed make a policy mistake? The labor market slowdown is now materializing more clearly.
“Job gains fell below the 150,000 threshold that would be considered consistent with a solid economy. A rate cut in September is on the cards and the Fed hopes that, once again, it has not been too slow to act.”
Michael Brown, market analyst at trading platform Pepperstone, added: “The July US employment report pointed to a continued cooling in labor market conditions.
“There is little in this report that would dissuade the Federal Reserve’s Open Markets Committee from delivering the first report of this cycle. [interest rate] cut at the next meeting in September, as suggested in this week’s statement.”
European stock markets, however, had already fallen on Thursday and continued their declines on Friday. The FTSE-100 is down 2.15% since Wednesday evening, a smaller decline than some of its peers in continental Europe, which have greater exposure to technology stocks.
The CAC-40 in Paris is down 3.1% in the last two sessions and the DAX in Germany is down 4.1%. The MIB in Italy fell 5.3% over the same period and the AEX in the Netherlands, an index dominated by ASML – the world’s biggest maker of equipment used to make chips – fell 3.9%.
Meanwhile, in the Asia-Pacific region, Japanese stocks experienced a truly aggressive sell-off.
Photo: AP
This was largely due to a strong rally in the yen against the US dollar following a surprise interest rate hike on Wednesday by the Bank of Japan.
The weakness of the yen, which hit a 38-year low against the dollar in June this year, has been an important driver of gains for Japanese stocks this year and the currency’s recovery caused the market to reverse. The Nikkei 225 index, which contains Japan’s top blue-chip companies, had already fallen on Thursday and on Friday fell another 5.8%, in the biggest daily drop since March 2020.
The Nikkei, which reached an all-time high earlier this year, has now fallen 12% since July 12th.
Meanwhile, the Topix, which is a broader index of Japanese stocks, fell 6.2%, the worst daily drop since 2016.
Read more on Sky News:
Mixed results for tech giants
What does the interest rate cut mean?
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The interesting thing about this latest sell-off is that, over the last few years, when central banks like the Federal Reserve and the Bank of England kept their policy rates at ultra-low levels, bad news for the economy was seen as good news for the markets. . on the basis that it would persuade central banks to keep rates lower for longer.
Everything changed when, in December 2021, the Bank became the first major central bank in the world to start raising interest rates and was followed shortly after by the Fed.
Now, with the “normalization” of interest rates underway for more than two years, bad news for the economy is once again treated as bad news for the markets.
This story originally appeared on News.sky.com read the full story
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