Fear of a recession in the United States is causing massive selling in world markets. Equities fell sharply, the dollar weakened, and bonds and the yen strengthened.
World financial markets witness a wave of risk aversionintensifying a dynamic that had already begun to be glimpsed at the end of last week, when the disappointing US economic data they unleashed the fear of a major recession economy of the world.
Asian markets closed lower, with the Nikkei 225 index Japan losing 12.4% to close at 31,458 pointsthe lowest level since December 2023.
European markets have opened with sharp falls
European stock markets They opened this Monday with sharp falls. At 9:30 in the morning, Central European Time, the Euro STOXX 50 index lost 2.8%reaching its lowest level since January and heading for its third consecutive day of losses.
The Italian FTSE Mib was the main laggard, with a fall of 3.5%, on its way to registering its worst fall in a single day since March 2023. For its partthe German DAXthe French CAC 40 and The Spanish Ibex 35 fell 2.5%.
Banking securities were the most affected. ING Groep shares plummeted by 6.8%followed by those of Societe Generalewhich fell 5%, Deutsche Banksome 4.4%, UniCredit, some 4%, Intesa Sanpaolo, some 3.9%, BNP Paribas, some 3.9%, y Banco Santander, 3.5%.
In the fixed income market, yields fell along the German yield curvewith the 2-year yield falling 6 basis points to 2.29%, its lowest level since March 2023. Bund yield fell 3 points basics up to 2.14%, reflecting the growing demand for safe-haven assets.
“Currently, market sentiment indicates that weak data is no longer interpreted as positive for risk because weaker growth drives down yields, rather than the disinflation story,” he wrote Mohamad Al-Sarafcurrency and rates strategist at Danske Bank.
The euro rose against the dollar to 1.0950, reaching its highest level since March 2024driven by the general weakness of the greenback. The Japanese yen chained five consecutive days of gains against the US dollar, amid the reversal of the ‘carry trade’ that had taken the yen to multi-decade lows in July.
On Monday, the USD/JPY exchange rate fell by more than 2.4%, marking its worst session since the end of 2022.
What is happening to the American economy?
The latest US data revealed a worse-than-expected contraction in manufacturing activity last monthwhile the employment report showed worrying signs of cooling.
The American economy only added 114,000 new nonfarm payrolls in July, a figure much lower than the previous one, revised downwards, to 179,000, and well below expectations of an increase of 150,000 payrolls. Alarmingly, the unemployment rate unexpectedly rose from 4.1% to 4.3%, reaching its highest level since October 2021.
The technological giants, with very different results
The quarterly results of the technology giants have been mixed, which has caused the S&P 500 index to close its third consecutive week in the red.
In particular, Warren Buffett sold almost half of its entire stake in Applemore than 50,000 million dollars (46,000 million euros) in shares, bringing the cash holdings of Berkshire They reached a historical maximum of 277,000 million dollars (254,000 million euros).
Wall Street pullback
Economic data below expectations and Wall Street pullback fueled a wave of safe-haven assets, particularly US Treasury bondsgiven that investors increased their bets on interest rate cuts Federal Reserve.
The market-implied probabilities derived from Interest rate futures experienced a shockand now operators almost entirely foresee a 50 basis point cut in Septemberfollowed by another similar movement in November and a reduction of 25 basis points in December.
ADVERTISINGThe Federal Reserve hinted at a rate cut
Last week, the Federal Reserve hinted at likely rate cut in September. However, the president Powell ruled out the idea of a 50-point cut basic.
All eyes are on the U.S. ISM Services PMI release on Monday to assess whether the manufacturing sector contraction is spreading to the services sector, which could indicate an ongoing recession. However, the consensus among economists expects an increase in the general index from 48.8 to 51.
The yen rises, the dollar falls: What do analysts think?
The main winners in this phase of intensification of sales in world markets are bonds and the Japanese yen, reflecting important movements in the interest rate market.
Chris Turner, director global de ING Marketswrote that the lowering of rates in the US, the more strategic intervention in Japanese currencies and the Last week’s rate hike by the Bank of Japan have contributed to the problems of USD/JPY.
ADVERTISING“We believe that this impulse of Dollar weakness may continue in the short term, at least until the S&P PMI and US ISM data for July are known, which are expected today,” he wrote Luca Cigogninimarket strategist at Intesa Sanpaolo.
The market could remain very volatile
According to Cigognini, the yen remains strong in this environment, but the market could remain very volatile. The same movement was observed in the EUR/JPYwhich, after closing on Friday around 160.00 and started today at 155.80, so a change in trend seems unlikely.
Goldman Sachs increased its chances of recession in US 12 months by 10 percentage points, up to 25%. However, the economist Jan Hatzius continues to consider the risk of recession limited, citing the overall strength of the data and the absence of large financial imbalances.
He also highlighted the emphasis of Chairman Powell on Fed capacity to cut the funds rate by 525 basis points and quickly support the economy if necessary.
ADVERTISINGDanske Bank expressed a bearish outlook on EUR/USD for the second half of the year, mainly due to the belief that too many Fed rate cuts in the next 12 months.
Consider the revaluation of the Fed cuts excessive, and they point out that, despite signs of weakening, the US economy is not on the brink of collapse. “ANDWe expect the EUR/USD pair to decline towards 1.05/1.03 in the next 6 to 12 months,” they write.
