The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, August 5, 2024. REUTERS/Staff
Global Equities Plunge Amid Recession Fears
Market Overview
Global equities experienced significant losses on Monday, with Wall Street joining a global stock rout that originated in Japan. The U.S. dollar fell against the yen, and U.S. Treasury yields dropped, driven by growing concerns about a potential recession in the United States.
Stock Market Reactions
Oil prices declined in a volatile session, influenced by recession fears. However, the declines were mitigated by worries that the escalating conflict in the Middle East could disrupt crude supplies. The CBOE Volatility Index, often referred to as Wall Street’s “fear gauge,” showed substantial fluctuation, rising by 12.5 points to 35.98 after an earlier spike to 65.73, the highest level since the onset of the COVID-19 pandemic in March 2020.
Japan’s benchmark Nikkei average experienced a severe drop, closing down 12.40%, marking its largest single-day decline since October 1987.
Impact of Economic Data
A weaker-than-expected U.S. payrolls report for July triggered a sell-off on Wall Street on Friday. This led to a significant increase in investor bets on a 50 basis point rate cut by the Federal Reserve in September. This sell-off was exacerbated by disappointing earnings reports from several major technology companies.
Eric Wallerstein, Chief Market Strategist at Yardeni Research, attributed the sell-off to a combination of factors, including unwinding yen-funded trades, escalating Middle East tensions, disappointing U.S. earnings reports, and the weak U.S. jobs report.
Rebound in Services Sector
Despite the overall negative sentiment, U.S. stocks recovered some losses after the Institute for Supply Management (ISM) reported that services sector activity rebounded in July from a four-year low, driven by rising orders and employment. The non-manufacturing Purchasing Managers’ Index (PMI) rose to 51.4 from 48.8 in June, surpassing economists’ expectations of 51.0. A PMI reading above 50 indicates growth in the services sector, which constitutes more than two-thirds of the U.S. economy.
U.S. Market Performance
At 10:40 a.m. (1440 GMT):
- The Dow Jones Industrial Average fell by 1,090.72 points, or 2.74%, to 38,646.54.
- The S&P 500 dropped by 165.63 points, or 3.10%, to 5,180.93.
- The Nasdaq Composite declined by 590.17 points, or 3.52%, to 16,185.99.
MSCI’s global stock gauge decreased by 26.19 points, or 3.33%, to 761.02, after hitting a low of 756 earlier. Europe’s STOXX 600 index fell by 2.29%.
Treasury and Currency Markets
U.S. Treasury yields fell to their lowest levels in over a year, with a key part of the Treasury yield curve turning positive for the first time in two years, reflecting increased concerns about a potential recession in the U.S.:
- The yield on benchmark 10-year notes fell by 2.3 basis points to 3.773%.
- The 30-year bond yield fell by 3.4 basis points to 4.0772%.
- The 2-year note yield rose by 0.9 basis points to 3.8811%.
In currency markets, the Japanese yen surged to a seven-month high against the dollar as traders unwound carry trades in response to last week’s U.S. economic data, which increased the likelihood of a recession and more substantial rate cuts by the Fed. The dollar index fell by 0.53% to 102.60. The euro increased by 0.5% to $1.0962, and the dollar weakened by 2.12% to 143.44 yen.
Commodity Markets
In energy markets:
- U.S. crude oil prices fell by 0.71% to $73 per barrel.
- Brent crude prices decreased by 0.55% to $76.39 per barrel.
In precious metals:
- Spot gold prices fell by 1.98% to $2,394.99 an ounce.
- U.S. gold futures dropped by 1.51% to $2,389.00 an ounce.
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