Recession fears in the US trigger sales in international markets

LONDON — U.S. stocks were on track for their worst opening of the post-pandemic era on Monday, as Wall Street continued to react to worse-than-expected jobs data as well as a massive overnight sell-off in markets Japanese.

In premarket futures trading, the Dow Jones Industrial Average is down as much as 1,000 points or 3%, the S&P 500 is down 3.4% and the tech-heavy Nasdaq is expected to fall 5% at the open.

This is moderate compared to the sharp declines Japanese stocks received overnight. One of the country’s main stock indexes fell 12.2%, one of the worst days since 1987’s “Black Monday” – the sudden and unexpected global stock market crash that raised fears of a depression.

While Japan’s rout was driven in part by U.S. jobs data, traders added fuel by ending so-called “carry trades” that saw them borrow at previously lower interest rates offered by the yen to buy cheaper assets. .

But a rise in the value of the Japanese yen against the US dollar – making Japanese assets more expensive for holders of other currencies – suddenly made the carry trade less profitable.

Monday’s impending decline in U.S. markets would represent the third consecutive day of trading with significant declines. While Friday’s jobs report, which showed the U.S. unemployment rate unexpectedly rose to 4.3%, caught Wall Street off guard, it also reacted to a Amazon’s weaker outlookas well as the growing belief that much of the recent rally in technology stocks, which pushed the Nasdaq to an all-time high just a month ago, was exaggerated.

This idea was formed in response to recent signals from large technology companies that the return on investments in artificial intelligence was still a long way off.

Among the companies that saw big drops in their share prices on Monday morning:

• Nvidiawhich has been at the center of the rise in technology stocks thanks to its unique graphics computer chips, was expected to open on Monday 14% lower.
• Apple, minus 9% in Monday futures trading. Over the weekend, Warren Buffett’s Berkshire Hathaway group revealed that it had sold almost half of its stake in the technology giant.
• Amazonminus 8%, and Microsoftminus 5%, in Monday’s negotiations.

Cryptocurrencies, including bitcoin and ethereum, have also seen considerable price drops. Bitcoin fell nearly 14% to around $50,000, its lowest level since the spring of this year, while Ethereum fell 17% to around $2,200, effectively erasing its gains for the year.

“The U.S. is the engine of the global economic train and growing concern about a slowdown, or possible recession, has markets around the world in turmoil,” said Greg McBride, chief financial analyst at Bankrate.com, in a note Monday. -fair. was disappointing, it was not the only worrying economic indicator, just the most recent. Combine economic concerns with the cacophony of earnings disappointments and poor business prospects, global unrest and currency swings, and you have a recipe for sudden volatility.”

Foremost now are concerns that the Federal Reserve has been too cautious in lowering interest rates – this makes money easier to borrow and move more freely – and will now have to catch up to other global central banks, which have acted first.

In an interview with CNBC about MondayJeremy Siegel, professor emeritus of finance at the Wharton School of Business at the University of Pennsylvania, said “Scream box” that last week’s unemployment number “exceeded” the central bank’s unemployment rate target of 4.2%. Meanwhile, inflation was largely controlled, he said.

“How much have we changed the federal funds rate? Zero,” said Siegel, now chief economist at financial group Wisdom Tree Investments. “That makes absolutely no sense.”

Siegel even raised the prospect of an emergency rate cut – something the Fed has only done during global crises like the Covid pandemic – although other commentators have dismissed this as unlikely.

The result is that investors are increasingly investing their money in US Treasury bonds – assets considered “safe havens” that act as stores of wealth in volatile times.

The yield on the 10-year note hit 3.683%, its lowest level since June 2023. While this is a sign that fears of a recession are rising, it could also bring relief to the housing market as mortgage rates track the 10-year yield.