Global stock markets sink on US economy fears
Stock markets across Europe and Asia fell sharply on Monday, driven by concerns that the US economy might be heading for a slowdown.
In London, the FTSE 100 index dropped 2.3% at the open, while the Euronext 100 saw a 3.5% decline.
This followed significant losses in Asia, with Japan’s Nikkei 225 plummeting 12.4%, or 4,451 points, marking the largest point drop in its history.
The decline comes in the wake of disappointing US jobs data released on Friday, which raised worries about the health of the world’s largest economy.
In addition, the yen has been gaining strength against the US dollar since the Bank of Japan raised interest rates last week, making Japanese stocks more expensive for foreign investors.
Markets in Taiwan, South Korea, India, Australia, Hong Kong, and Shanghai also experienced declines.
Weaker-than-expected US economic data has sparked speculation about a potential slowdown, while the US Federal Reserve opted not to cut interest rates last week, unlike other central banks such as the Bank of England. Major American companies like Amazon and Intel also reported unsatisfactory financial results.
US employment data revealed that employers added only 114,000 jobs in July, well below expectations, and the unemployment rate increased.
Shanti Kelemen, chief investment officer at M&G Wealth, told the BBC’s Today programme, “There are signs that the market might be slowing down a bit. This also seemed to spook some investors on Friday, and the Japanese market, which was already closed at that time, is now reacting to those developments.”
On the other hand, Kei Okamura, a Tokyo-based portfolio manager at Neuberger Berman, noted that in Asia, the selloff was largely driven by the yen’s sharp appreciation. This has led global investors to become cautious about Japanese corporate earnings, particularly those of exporters like automakers.
The yen has strengthened by over 10% against the US dollar in the past month, making Japanese goods more expensive and less attractive to foreign buyers.
Unlike other central banks, the Bank of Japan lifted interest rates last week to the highest level since the global financial crisis in 2008.
Inflation in Japan rose by more than expected in June while the economy shrank in the first three months of the year because of a weaker yen and poor household spending.
Elsewhere in the Asia-Pacific region, Taiwan’s main share index and South Korea’s Kospi both fell more than 8%.
India’s main index, the NSE Nifty 50, was trading 2.8% lower and the S&P/ASX 200 in Australia was down about 3.6%.
The Hang Seng in Hong Kong was down 2.5%, while the Shanghai Stock Exchange was 1.4% lower.
Cryptocurrencies were also down. Bitcoin dropped to around $50,000, its lowest level since February.
On Friday, stocks in New York fell sharply following the disappointing jobs data, which also showed that employment for May and June had been revised down.
The figures for July raised concerns that a long-running jobs boom in the US might be coming to an end. It stoked speculation about when – and by how much – the Federal Reserve will cut interest rates.
There are fears that the US economy will slow, despite the most recent data showing that it expanded at an annual rate of 2.8%.
Ms Kelemen, chief investment officer at M&G Wealth, said: “You can pick out evidence to create a positive story, you can also pick out the evidence to create a negative story.
“I don’t think it universally points to one direction yet.”
Stock markets were already worried about high borrowing costs and unsettled by signs that a long-running rally in share prices, fuelled in part by optimism over artificial intelligence (AI), might be running out steam.
Friday’s decline in the Nasdaq brought the index down about 10% from its most recent peak – a fall known as a “correction” – that in this case has happened in a matter of weeks.
The Dow Jones Industrial Average also dropped 1.5% on Friday, and the S&P 500 ended 1.8% lower.
Over the weekend, veteran US investor Warren Buffett’s firm Berkshire Hathaway revealed that it had sold about half its stake in US technology giant Apple.
