Global Markets Plunge as US Recession Fears Escalate; Gold Hits Record High
Fears of a US recession intensified following a weak employment report that indicated a sharp cooling in the jobs market, raising the unemployment rate and sparking a global sell-off. The report revealed only 114,000 new jobs in July, falling short of the 175,000 anticipated, and pushed the US unemployment rate up from 4.1% to 4.3%. This has led to speculation that the Federal Reserve might implement a substantial rate cut in September, or even an emergency rate adjustment, to stimulate the economy.
Stephen Brown, deputy chief North America economist at Capital Economics, suggested that the weak payroll data makes a September rate cut inevitable, with a potential 50 basis points cut or an intra-meeting move becoming increasingly likely.
Adding to the market anxiety, disappointing results from semiconductor giant Intel led to a nearly 3% drop in the tech-focused Nasdaq index, which is now approaching a 10% correction from its record high. Japanese equities suffered their worst day since the pandemic, with the Nikkei 225 plummeting 5.8% and the broader Topix index falling 6.1%. In Australia, the ASX declined 2.5%, and Hong Kong’s Hang Seng dropped 2.1%.
European indices also fell, with technology stocks reaching their lowest point in over six months. France’s CAC 40 and Germany’s Dax each saw declines, and Dutch chipmaker ASML’s shares fell 9.6%, while ASM International dropped 13.7%.
Jim Reid, an analyst at Deutsche Bank, noted the precarious situation for risk markets, exacerbated by weak US data and disappointing tech earnings.
In London, the FTSE 100 index lost more than 120 points, a 1.5% drop. This followed a rough day on Wall Street, where the Dow Jones industrial average fell 1.2%, or nearly 500 points, after data revealed a slump in US manufacturing activity and an increase in new unemployment claims.
Market expectations now heavily favor a rate cut by the Fed in September, with a 60% chance of a significant half-point cut following the dismal jobs report. The US dollar weakened, boosting the pound to $1.28 and the euro to $1.092.
Intel’s shares fell over 28% after announcing plans to cut 15,000 jobs, and Amazon’s stock dropped 10% due to missed sales forecasts. Nvidia’s shares also fell 2.7% amid news of a US Department of Justice investigation into its market practices.
As stock markets faltered, gold futures surged to a new record, with prices rising 1% to $2,506.40 an ounce as investors sought safe-haven assets amid economic uncertainty.